Question

Calculate the full cost per redeemed coupon given the following facts:

Face value = 75 ¢;
Handling cost = 8 ¢
20 million coupons distributed at $7 per thousand
Redemption rate = 3 percent
Pleae answer following questions:

Distribution costs =
Expected redeemed coupons =
Redemption costs =
Handling costs =
Total costs =
Cost/redeemed coupon =

In the scenario above, if misredemption rate is 5 percent, what is cost per successfully redeemed coupon?

Answer 1

To calculate the full cost per redeemed coupon, you need to consider distribution costs, expected redeemed coupons, redemption costs, handling costs, and total costs. The cost per redeemed coupon can be calculated by dividing the total costs by the expected redeemed coupons. If the misredemption rate is given, you can adjust the redemption rate to calculate the cost per successfully redeemed coupon.

Step-by-step explanation:

To calculate the full cost per redeemed coupon, we need to consider the various costs involved. Let's break it down:

1. Distribution costs: This is the cost of distributing the coupons. It can be calculated by multiplying the number of coupons distributed by the cost per thousand, and then dividing by 1000. In this case, it would be $7 * 20,000 / 1000 = $140,000.
2. Expected redeemed coupons: This is the number of coupons that are expected to be redeemed. It can be calculated by multiplying the number of coupons distributed by the redemption rate, and then dividing by 100. In this case, it would be 20,000,000 * 3 / 100 = 600,000.
3. Redemption costs: This is the cost of redeeming the coupons. It can be calculated by multiplying the expected redeemed coupons by the face value. In this case, it would be 600,000 * 75¢ = $450,000.
4. Handling costs: This is the cost of handling each redeemed coupon. It can be calculated by multiplying the expected redeemed coupons by the handling cost. In this case, it would be 600,000 * 8¢ = $48,000.
5. Total costs: This is the sum of distribution costs, redemption costs, and handling costs. In this case, it would be $140,000 + $450,000 + $48,000 = $638,000.
6. Cost/redeemed coupon: This is the total costs divided by the expected redeemed coupons. In this case, it would be $638,000 / 600,000 = $1.06.

If the misredemption rate is 5 percent, the cost per successfully redeemed coupon can be calculated by subtracting the misredemption rate from the redemption rate, and then recalculating the redemption costs and cost/redeemed coupon using the new redemption rate. For example, if the redemption rate is now 3 - 5 = -2 percent, the redemption costs would be 600,000 * -2 / 100 * 75¢ = $0.