Distinguish between product costs and period costs and give examples of each given below.
Costs are classified as either product costs or period costs for the purposes of valuing inventories and determining expenses for the balance sheet and income statement.
Product costs are allocated to inventories, which are treated as assets until the products are sold.
Product costs become cost of goods sold on the income statement at the point of sale.
Period costs, on the other hand, are taken directly to the income statement as expenses in the period in which they are incurred, according to standard accrual practices.
Product cost in a merchandising company is whatever the company paid for its merchandise.
In a manufacturing company's external financial reports, product costs include all manufacturing costs.
Selling and administrative costs are considered period costs in both types of businesses.
For more differences refer to the attached image.
Examples of product costs include direct materials, direct labor, and allocated factory overhead.
Examples of period costs are general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.
Hence, product costs and period costs differ because of many reasons.
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