Question

Java Coffee Co. offers a promotional coupon with every cup of coffee it sells. The coupon gives the customer an opportunity to buy a specialty coffee that normally sells for $5 for only $3 (a 40% discount). The coupon must be redeemed within one month of the purchase. Java Coffee estimates that 80% of customers will take advantage of the coupon. What is the stand-alone selling price of the coupon? If the original cup of the coffee price is $4.80, how much revenue is recognized immediately and how much is deferred?

Answer 1

Stand alone selling price of the coupon is $3 which means that any customer can buy the coffee at the above said rate (which is discounted rate @40%)

Let us assume that 100 customers have bought the coffee who has also been gifted with a coupon where customer can buy coffee @$3 only( i.e. 40% discount). Where now they have to pay $4.80 per coffee

Revenue recognized immediately,

No. of coffee sold *rate of coffee

100*4.8= $480

Deferred Revenue recognized

No. of coffee sold * rate of discounted coupon *percentage of customer who will avail the coupon

100*$3*80% =$240