Paul Company includes three coupons in each package of crackers it sells. In exchange for 20 coupons, a customer will receive a cheese plate. Paul estimates that 30% of the coupons will be redeemed. In 2010, Paul sold 4,000,000 boxes of crackers and purchased 150,000 cheese plates at $2.50 each. During the year, 970,000 coupons were redeemed.
What amount should Paul record as premium expense for 2010?
a. $500,000
b. $121,250
c. $375,000
d. $450,000