Final answer:
Period costs consist of selling and administrative costs and are essential for maintaining the operational aspect of a business. They include non-manufacturing expenses like administrative costs and are important in the management of insurance companies and other businesses. Hence, the correct answer is option (c).
Step-by-step explanation:
The costs consisting of selling and administrative costs are period costs. Unlike direct costs which are directly traceable to a product, or prime and indirect costs which are associated with the manufacturing process, period costs are not directly tied to the production process and include expenses like administrative costs, salaries of sales personnel, rent for office space, and utilities for office buildings.
In the context of insurance companies, period costs would encompass the administrative expenses of running the business, which can include hiring workers, account administration, and processing insurance claims. These costs are essential for maintaining the operational aspect of a business.
Understanding the difference between explicit costs (like wages and rent) and implicit costs (like the opportunity cost of using resources the firm owns) is also important in cost accounting. Period costs as an explicit cost represent the actual out-of-pocket expenses for non-manufacturing functions of a business, which contrast with the more indirect nature of implicit costs, such as depreciation or owner contributions that don't involve direct payment.