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19 November, 17:20

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $4,680 and is paid at the beginning of the first year. Eighty percent of the premium applies to manufacturing operations and twenty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?

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  1. 19 November, 18:51
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    Product cost = $1248

    Period Cost = $312

    Explanation:

    Giving the following information:

    The insurance coverage premium for the three years is $4,680.

    Eighty percent of the premium applies to manufacturing operations and twenty percent applies to selling and administrative activities.

    Total period:

    Product cost = 0.80*4680 = $3744

    Period Cost = 0.20*4680 = $936

    For the first year:

    Product cost = $3744/3 = $1248

    Period Cost = $936/3 = $312
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