Roth Office Supply is an authorized reseller of Quick Computers—a well-known company that manufactures computers. Quick Computers has a cooperative advertising program available to all its retailers like Roth Office Supply. Quick Computers has provided Roth Office Supply with the guidelines that must be followed in order for their Yellow Page advertising to qualify under the cooperative advertising program.
Roth Office Supply earns a 3.5 percent advertising credit on each purchase of computers it makes from Quick Computers throughout the year. The maximum credit that Roth Office Supply can earn is $2,500 during one year. Quick Computers will pay up to 50 percent of the cost of any single Yellow Page advertisement.
During the past year, Roth Office Supply purchased $37,000 worth of computers from Quick Computers. Therefore, Roth Office Supply earned $1,295 in advertising credit ($37,000 x 3.5%).
The cost of Roth Office Supply's Yellow Page advertisement for the next telephone directory was $885. Since Quick Computers will pay up to 50 percent of the total cost of the Yellow Page advertisement, Roth Office Supply will be reimbursed for $442.50 of the Yellow Page advertising cost ($885 x 50%). Roth Office Supply still has an additional $852.50 in advertising credit it can use to purchase other Yellow Page advertisements ($1,295 - $442.50).