Product Costs vs Period Costs
Modified on 2009/10/07 13:20 by tmkern — Categorized as: Uncategorized
See Also:
Product Pricing Strategies
Product Costs vs Period Costs
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In accounting, all costs incurred by a company can be categorized as either product costs or period costs. The two types of costs are recorded differently.
Product costs are applied to the products the company produces and sells. Product costs refer to all costs incurred to obtain or produce the end-products. Examples of product costs include the cost of raw materials,
direct labor
, and
overhead
. Before the products are sold, these costs are recorded in inventory accounts on the
balance sheet
. They are treated like
assets
. Product costs are sometimes referred to as “
inventoriable costs
.” When the products are sold, these costs are expensed as costs of goods sold on the
income statement
.
Period costs are the costs that cannot be directly linked to the production of end-products. Essentially, any cost that is not a product cost is a period cost. Examples of period costs include sales costs and
administrative costs
. Period costs are always expensed on the income statement during the period in which they are incurred.
In sum, product costs are inventoried on the balance sheet before being expensed on the income statement. Period costs are just expensed on the income statement.