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October 13, 2006

Is rent expense a period cost or a product cost?

When a company incurs rent for its manufacturing operations, the rent is a product cost. It is common for the rent to be included in the manufacturing overhead that will be allocated or assigned to the products. That rent as part of the manufacturing overhead cost will cling to the products. If the products remain in inventory, the rent is included in the manufacturing overhead portion of the product’s cost. When products are sold, the rent allocated to those products will be expensed as part of the cost of goods sold.

If the rent is for items involved in the selling function (rent for office space, equipment, autos, etc.) or if the rent is for items in the administrative function of the company, the rent is a period cost and will be expensed in the period when the expense is incurred. These rents will not be allocated to the products for external financial statements.

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Comments

3 Responses to “Is rent expense a period cost or a product cost?”

  1. Gram on April 25th, 2008 7:19 pm

    We pay deposits to confernece speakers. Are these a prepaid expense or a current expense because the agreement states a deposit is due at a particular time?

    Thanks.

  2. Imrul on April 25th, 2009 5:27 am

    Pleses sent all free accounting related book and articales.

  3. Razzy on July 29th, 2009 12:26 pm

    rent is a product because is attached to the cost of the product. Rent is a revenue expense which is charged accordingly. Periodical cost may also be called capital expenditure.

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