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September 24, 2007

What is the difference between product costs and period costs?

A manufacturer’s product costs are the direct materials, direct labor, and manufacturing overhead used in making its products. (Manufacturing overhead is also referred to as factory overhead, indirect manufacturing costs, and burden.) The product costs of direct materials, direct labor, and manufacturing overhead are also “inventoriable” costs, since these are the necessary costs of manufacturing the products.

Period costs are not a necessary part of the manufacturing process. As a result, period costs cannot be assigned to the products or to the cost of inventory. The period costs are usually associated with the selling function of the business or its general administration. The period costs are reported as expenses in the accounting period in which they 1) best match with revenues, 2) when they expire, or 3) in the current accounting period. In addition to the selling and general administrative expenses, most interest expense is a period expense.

Learn more about Manufacturing Overhead and Nonmanufacturing Overhead.

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Comments

12 Responses to “What is the difference between product costs and period costs?”

  1. amal on January 14th, 2008 2:38 pm

    i need more information

  2. nadine on November 9th, 2008 3:23 pm

    hey, i love your site soo much, its really good , promote it and keep the articles coming!!

  3. Zaki on November 20th, 2008 11:59 am

    Product costs are the cost of purchasing or manufacturing inventory. Thus, untill the related costs are sold,product costs represent inventory, which is an asset.When the goods are sold, the product costs are deducted from revenue as the cost of goods sold.

    Costs which are associated with time periods, rather than with the purchase or manufacture of inventory are, are termed as period costs like selling and general expenses and admin expenses, interest or income tax expenses.

  4. mpa on January 28th, 2009 3:39 am

    this ia such an interestig site ever. i will at all times refer to it as i contact my researches on other topics in accounting especially those related to the teaching and lerning of accounting at cosc and univrsity level. keep up thr good work

  5. Taymite on February 17th, 2009 6:29 am

    an impressive site!
    I just got to the root of the difference between the two that I’ve been mistaken greatly before

  6. Finance Major on February 27th, 2009 8:15 pm

    Good stuff. I learned something today.

  7. mona on March 3rd, 2009 10:33 pm

    period cost cost to sell product

    product cost manufacter cost to make product

  8. shams on May 24th, 2009 12:11 pm

    PERIOD COST: Cost that are deducted as an expanses during period without going through inventory.

    Product Cost: Cost which is identified with goods produced or purchased for re-sale…..

    plzzz tell me…am i right…..

  9. Muskan on August 18th, 2009 9:07 am

    i want to know difference between product costs and period costs in simple words?

  10. umair on September 9th, 2009 7:24 pm

    can u explian it with examples.

  11. ibrahim on September 15th, 2009 3:53 pm

    the answer was good enough

  12. Alphy. on November 15th, 2009 4:55 am

    Am personally impressed by the work you people do since this cite helps needy students like me who cant afford the books.,thenx a great deal.

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