Question:
Funzy Cereal includes one coupon in every package of Wheatos that it sells and provides a premuim, a toy car, in exchange for 3 coupons. The cars cost Funzy $.75 each. Experience shows that 40% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2.4 million of the coupons were redeemed. Determine what amount should Funzy report as a promotional expense on its December 31, 2011, income statement?