A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,100 and is paid at the beginning of the first year. Sixty percent of the premium applies to manufacturing operations and forty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?
A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,100 and is paid at the beginning of the first year. Sixty percent of the premium applies to manufacturing operations and forty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage? 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D

Quizplus · Accepted Answer

Annual insurance expense = $2,100 ÷ 3 = $700
Portion applicable to product cost = 0.60 × $700 = $420
Portion applicable to period cost = 0.40 × $700 = $280

A Manufacturing Company Prepays Its Insurance Coverage for a Three-Year