Question

   The terms period cost and product cost are sometimes used to describe certain items in financial statements. Define these terms and distinguish between them. To what types does each apply.

Answer 1

Period costs are the costs which are of regular nature and are considered non-operting costs which are expensed off in the period being incurred, whereas product cost are the inventoriable cost which include all operating costs of producing a product.

The basic difference in the nature of period cost and product cost is that period cost are bon-operating in nature whereas product costs are operating costs or direct cost which are capitalised in nature and are included in the cost of finished goods being produced.

Period costs are related to costs affecting income statement such as advertisement cost, depreciation, repairs etc, whereas product costs are releted to balance sheet and include cost such as direct materials, direct labor and variable and fixed manufacturing costs.