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?

Question

Alden Leonard

Business

23 April, 17:43

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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Answers (1)

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Michelle Kim · Answer 1

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