Question

1. (17 points) Wynn Company offers a set of building blocks to customers who send in 2 UPC codes from Wynn cereals. The block sets cost Wynn $1.10 each to purchase, plus S.60 each to mail to customers. Wynn purchased 200,000 sets of blocks. 1.70 x 200,000 - 340,000 During 2020, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be used for the blocks. During 2020 individual codes of 150,000 were redeemed. a. Compute the ending balance in Product Premium EXPENSE. b. Compute the ending balance of Product Premium LIABILITY

Answer 1

a.

Number of boxes of cereal sold = 1,200,000

One box contains one UPC code. Therefore, number of UPC codes distributed = 1,200,000

30% of the UPC codes will be used for the blocks. That means, 1,200,000 x 30% = 360,000 UPC codes will be used.

2 UPC codes are required for one block.

So, number of blocks to be distributed = 360,000 x 1/2 = 180,000

Cost of distributing one block = $1.10 + $0.60 = $1.70

Thus,

Ending balance in Product Premium Expense = 180,000 x $1.70 = $306,000

b.

150,000 codes were redeemed.

That means, 150,000 x 1/2 = 75,000 blocks were distributed.

Cost of distributing 75,000 blocks = $1.70 x 75,000 = $127,500

Thus,

Ending balance in Product Premium Liability = $306,000 - $127,500 = $178,500