The cost of fire insurance for a manufacturing plant is generally considered to be a “” cost?

Question

A. Variable costB. Period costC. Product costD. All of the above

Dr. Frankie Medhurst · Accepted Answer

I would call it a Fixed Cost, as it doesn’t matter whether your plant is running fast or slow, your fire insurance will be the same. As it is normally charged by the year I would select B. Period Cost from your options. It definitely is not a product cost as it is not necessary to produce your “goods” and does not form part of the finished item produced by your plant.Variable costs vary according to how much you produce. So if you have a pottery your product cost will include the clay and the glaze, and your variable cost will be the gas to heat up the kiln where you fire your pots. Hope that helps.

Dr. Frankie Medhurst · Answer

It is a Fixed cost, but since it is a cost of the manufacturing plant, it is a Product cost.Period cost refers to S,G & A type expenses, while Product cost includes all cost to make the product: direct material, direct labor, and all manufacturing expense, both fixed and variable.And fire insurance on the plant is a necessary cost of making the product.

Prof. Cristobal Welch

The cost of fire insurance for a manufacturing plant is generally considered to be a “” cost?

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