Boston Beans launched a promotion in 2017. Customers can send in 4 UPC codes from cans of Boston Beans along with $6.00 and receive a set of barbecue utensils. Boston Beans buys the utensil sets from a wholesale company for $9.00. Boston Beans also incurs $1.50 in shipping costs for each utensil set shipped to a customer. The company estimates that 40% of UPC codes will be redeemed based on past promotions. During 2017, 2,000,000 cans of Boston Beans were sold. In addition 240,000 UPC codes were redeemed. Boston Beans recorded the 2017 redemptions as they occurred.
Required:
Calculate the amount of the necessary December 31, 2017 adjustment for the promotion and prepare the necessary journal entry.
Total cost of making available the utensil set to customer = cost of the utensil set + shipping fee= 9+1.5 =$10.5
Total codes redeemed =2,40,000
Total customers who were actually given the utensil set = number of codes redeemed/ number of codes required for a customer to get the set =2,40,000/4 = 60,000
Total amount received from these customers= Number of customers* amount to be shared by customers along with codes =60,000*6 =$3,60,000
Total cost incurred by company= Number of customers* cost of making utensils available = 60,000*10.5 = $6,30,000
Net loss/ profit for the promotion= Cost incurred by company- amount received from customers = 6,30,000-3,60,000 = $2,70,000
Journey entry
Account Debit ($) Credit ($)
Cash 3,60,000
Loss on promotions 2,70,000
Promotions 6,30,0000
Boston Beans launched a promotion in 2017. Customers can send in 4 UPC codes from cans...
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