Chancellor Industries, a manufacturing company, prepays its insurance coverage for a two-year period. The premium for two-year's worth of coverage is $14,400 and is paid at the beginning of the first year. Two-thirds of the premium relates to factory operations and one-third relates to selling and administrative activities. The amount of premium that should be recorded as a product cost for the first year is:

Question

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The total premium for two years is $14,400, with two-thirds related to factory operations. Two-thirds of $14,400 is $9,600, which is the total factory-related premium for two years. For the first year, half of this amount ($9,600 / 2) should be recorded as a product cost, which equals $4,800.

Chancellor Industries, a Manufacturing Company, Prepays Its Insurance Coverage for a Two-Year