Question

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $3,780 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?

1) $3,780 $0
2) $3,024 $756
3) $2,016 $504
4) $1,008 $252

Answer 1

The product and period costs for the first year of coverage are $3,024 and $756 respectively.

Step-by-step explanation:

To determine the amounts considered as product and period costs respectively for the first year of coverage, we need to calculate eighty percent of the premium for manufacturing operations and twenty percent for selling and administrative activities.

1. Eighty percent of the premium: 0.8 * $3,780 = $3,024
2. Twenty percent of the premium: 0.2 * $3,780 = $756

Therefore, the amounts considered as product and period costs respectively for the first year of coverage are $3,024 and $756.