Question

Why is it important to distinguish between product and period costs?

Answer 1

Product Costs are the manufacturing costs which is to be added to the cost of inventory while calculating cost of inventory or cost of goods sold. Example: Direct material, Direct labour etc

Period costs are any costs other than product cost ( non manufacturing cost) which is incured for a period and not a part of inventory cost. Example: Salaries, Rent etc

It's important to distinguish between product and period cost for proper calculation of cost of good sold, Cost of Inventory, Gross profit etc.