Question

Eastern Publishing, Inc. owns a weekly magazine called “Landscapes of Maine” and sells annual subscriptions for $97. Customers prepay their subscription fee and receive 52 issues starting in the following month. The company also offers new subscribers a 25% discount coupon on its other weekly magazine called “Watercolor Connections” which has a list price of $120 for an annual subscription. Eastern Publishing estimates that approximately 10% of the discount coupons will be redeemed. What amount of the total selling price of $97 should be allocated to the discount coupon? (Your answer should be rounded to the nearest penny)

Answer 1

Here, it is said that approx 10% of the discount coupons will be redeemed. We assume that that’s 10% of total coupons issued to customers who subscribed to annual subcription of the magazine “Landscape of Maine” will be redeeming the coupon.

Hence if 100% is $12000, 10% of the redemption who buy the seond magazine is $1200. And 25% discount of $1200 wll be $300.

Hence, $300 needs to be allocated in the 100% of the magazine sold at $97(=9700 units)

Therefore allotment in single magazine = 300/9700 = $.031

Hence, it can be established that $.031 of the total selling pice of $97 should be allocated to the discount coupon.