PRODUCT COST AND PERIOD COST
Period cost vs Product cost is nothing but the expenses in the company, and anything management of a company wants a separate measurement cost because in any business cost is a major concern. The cost of any product is classified into Period cost and Product cost based on its relation with the products.
The key difference between product cost and period cost is that product concurs when a company produces any products. Therefore, such costs are apportioned to a product. On the other hand, period costs incur with time. Consequently, they are not apportioned to any product but charged as an expense in the income statement.
In business, the cost is a significant concern, and it is mainly associated with the production of revenue. It is often crucial to a company’s competence to improve its margins and market share in the long run. Different business costs are variable, fixed, period, or product costs.
Product Costs
Product costs (also known as inventoriable costs) are costs assigned to products. These costs are identified as being either direct materials, direct labor, or factory overheads, and they are traceable or assignable to products.
Product costs only become an expense when the products to which they are attached are sold. Product costs are also related to manufacturing activities.
Examples of product costs include the cost of raw materials used, depreciation on plant, expired insurance on plant, production supervisor salaries, manufacturing supplies used, and plant maintenance.
Period Costs
Period costs are expired non-product costs. They are identified with measured time intervals and not with goods or services. Period costs can be defined as any cost or expense items listed in the firm’s income statement.
Examples of period costs include selling costs and administrative costs.
Both of these costs are considered period costs because selling and administrative expenses are used up over the same period in which they originate. In other words, period costs are related to the services consumed over the period in question.
-:DIFFERENCE:-
| Period Cost | Product Cost |
| Period costs are not apportioned as they cannot be assigned to any products but are charged as an expense. | The product cost is apportioned to the products as they are directly related to the production of goods and services. |
| The basis of this cost is time. | The basis of this cost is volume. |
| The cost comprises office and administrative costs, selling and distribution cost, etc. | The cost comprises manufacturing or production cost. |
| Period cost is not a part of the cost of production. | The product cost is often a part of the cost of production. |
| A period cost is generally fixed like salaries, rent and is revised yearly. | Product cost is generally variable as it depends on the production of goods. |
| Examples of period costs are audit fees, sales fees, rent of the office building, etc. | Examples of product cost are raw material, direct labor, factory rent, inventory, etc. |
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