Period Costs vs. Product Costs: An Overview

Period costs and product costs are two categories of costs for a company that are incurred in producing and selling their product or service. Below, we explain each and hꦬow they differ from one another.

Product Costs

Product costs are the direct costs involved in producing a product. A manufacturer, for example,♏ would have product costs that include:

• Direct labor
• Raw materials
• Manufacturing supplies
• Overhead that is directly tied to the production facility such as electricity

For a retailer, the product costs would include the supplies purchased from a supplier and any other costs involved in🌠 bringing their goods to market. In short, any costs incurred in the process of acquiring or ﷽manufacturing a product are considered product costs.

Product costs are often treated as inventory and are referred to as "inventoriable costs" because these costs are used to value the inventory. When products are sold, the product costs become part of costs of gooﷺds sold as shown in the income statement. 

Period Costs

Period costs are all costs not included in product costs. Period costs are not directly tied to the production process. Overhead or 澳洲幸运5官方开奖结果体彩网:sales, general, and administrative (SG&A) costs are considered period costs. SG&A includes costs of the corporate office, selling, marketing, and the overall administration of comp💧any business.

Period costs are not assigneꦚ𒁃d to one particular product or the cost of inventory like product costs. Therefore, period costs are listed as an expense in the accounting period in which they occurred.

Other examples of period costs include marketing expenses, rent (not directly tied to a production facility), office 澳洲幸运5官方开奖结果体彩网:depreciation, and indirect labor. Also, interest expense oᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚn a company's d🧸ebt would be classified as a period cost.

Considerations in Production Costs Calculations

Both product costs andꩵ period costs may be either fixed or variable in nature.

Production costs are usually part of the 澳洲幸运5官方开奖结果体彩网:variable costs of business because the amount spent will vary in proportion to the amount produced. However, the costs of machinery and operational spaces are likely to be fixed proportions of this, and these may well appear under a 澳洲幸运5官方开奖结果体彩网:fixed cost heading or be recorded as depreci꧒ation on a separate accounting sheetꦆ.

The person creating the production cost calculation, the♈refore, has to decide whether these costs are already accounted for or if they must be a part of the over🐻all calculation of production costs.

Also, fixed and variable costs may be calculated differently at different phases in a business's 澳洲幸运5官方开奖结果体彩网:life cycle or accounting year. Whether the calculation is for 澳洲幸运5官方开奖结果体彩网:forecasting or reporting affects the appropriate methodology as we𒁏ll.