A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $4,770 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) $4,770 $0 B) $3,339 $1,431 C) $2,226 $954 D) $1,113 $477
A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $4,770 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) $4,770 $0 B) $3,339 $1,431 C) $2,226 $954 D) $1,113 $477
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $4,770 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) | $4,770 | $0 |
| B) | $3,339 | $1,431 |
| C) | $2,226 | $954 |
| D) | $1,113 | $477 |
Expert Solution
Step 1 Introduction:
Period costs are those costs which are not directly related to the production process. These are not included in the cost of product. These costs are related to selling and distribution of products or administration of the office.
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