Product vs. Period Cost

Manufacturers, retailers, and any company with inventory must distinguish between product costs and period costs. The difference between product costs and period costs has to do with the timing (when the cost is expensed).
A product cost is assigned to inventory, and is expensed when the product is sold through Cost of Goods Sold. For a manufacturer, product costs include all manufacturing costs: direct materials, direct labor, and manufacturing overhead. These costs first become an asset (inventory) and are expensed when the asset is sold.
A period cost is any cost that is not a product cost. Period costs are expensed when they are incurred. Selling, general, and administrative expenses are an example of a period cost. If a manufacturer pays a sales commission to one of its sales staff, this cost is expensed and does not attach to inventory.-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
edspira.thinki...
-
LISTEN TO THE SCHEME PODCAST
Apple Podcasts: podcasts.apple...
Spotify: open.spotify.c...
Website: www.edspira.co...
-
GET TAX TIPS ON TIKTOK
/ prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
www.edspira.co...
-
CONNECT WITH EDSPIRA
Facebook: / edspira
Instagram: / edspiradotcom
LinkedIn: / edspira
-
CONNECT WITH MICHAEL
Twitter: / prof_mclaughlin
LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
www.edspira.co...
michaelmclaugh...

[@yinyin7614]

Wonderful explanation. Recommended.

[@sajinc27]

thank you for your time! It really add values.

[@chase78966]

Hey didn't know u still post. Can u post a video about throuhput cost? Idt i saw one

[@DallasSan1]

Thank you! 😊

[@thelmatv4888]

Thank you very muchhhhhhh

[@alondraorozco3327]

Thank you so much!

[@Edspira]

Glad it helped!

[@laurax9042]

Thank you!!!

[@yui7073]

Why assembly workers' wages can be either period cost or product cost? Just confused with this CIMA question

[@snipergxs9852]

So product cost include both direct and indirect costs?

[@TulaibRehman]

Yes, it includes direct costs in the form of direct material and direct labour, and indirect costs in the form of manufacturing overhead.

[@lulwabuheji6327]

annual retainer paid to a video distributor, costs of videos purchased for sale to customers leasing of computer software earthquake insurance electricity cost classify them product or period cost? value adding or non value adding?