A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,700 and is paid at the beginning of the first year. 80% of the premium applies to manufacturing operations and 20% applies to selling and administrative activities.

What amounts should be considered product and period costs respectively for the first year of coverage under variable costing system?

Product Period

a. $2,700 $0

b. $2,160 $540

c. $1,440 $360

d. $720 $180

e. $0 $900