Question

Kellogg Company offers its customers a cereal bowl if they send in 5 cereal boxtops and $1.00. The company estimates that 50% of the boxtops will be redeemed. In 2023, the company sold 600,000 boxes and customers redeemed 130,000 boxtops, receiving 26,000 bowls. The bowls cost Kellogg $2.75 each. Premium Expense for 2023 is:

Answer 1

$105,000

Step-by-step explanation:

Boxes sold in 2017 = 600,000 boxes

Number of boxes expected to be redeemed = 600,000 * 50% = 300,000 boxes

Number of bowls expected to be offered = 300,000 * 1/5 = 60,000 bowls

Net cost of each bowl to the company = $2.75 - $1 = $1.75

Premium expense = $1.75 * 60,000 bowls = $105,000

So, the premium expense for 2023 is $105,000