Question

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $3,360 and is paid at the beginning of the first year. Seventy percent of the premium applies to manufacturing operations and thirty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?
Product Period
A) $3,360 $0
B) $2,352 $1,008
C) $1,568 $672
D) $784 $336

Answer 1

Answer:

Amount considered for product = $784

Amount considered for period cost = $336

Step-by-step explanation:

Given:

The total premium for 3 years = $3,360

Percentage of premium applied to manufacturing operations = 70%

Percentage of premium applied to administrative activities = 30%

thus,

the premium per year = $\frac{\textup{3360}}{\textup{3}}$  = $1,120

Now,

Amount considered for product = premium applied to manufacturing operations

or

Amount considered for product = 70% of the premium for the first year

or

Amount considered for product = 0.70 × $1,120 = $784

and,

Amount considered for period cost = premium applied to administrative activities

or

Amount considered for period cost = 30% of the premium for the first year

or

Amount considered for period cost = 0.30 × $1,120 = $336