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This question is about list of skills.
Product Cost vs. Period Cost
The difference between product cost and period cost is important in business and budgeting, as it helps to understand the true cost of producing an item. Both deal with individual costs of running a service or product but focus on different totals.
Product costs are any costs that are directly related to the production of a product or service. Period costs are all other costs that incur during production.
Key Takeaways:
| Product Cost | Period Cost |
|---|---|
| Product costs are directly associated with producing a service or product. This includes things like raw materials, supplies, and direct labor. | Period costs are indirectly associated with producing a service or product. Overhead, sales and marketing expenses are included as period costs. |
| Product costs are often treated as inventory and can be referred to as "inventoriable costs" because their costs add value to inventory. When sold, they become part of the cost of goods sold. | Period costs do not have one specific assignment linked to them, so they are simply listed as an expense in the accounting period in which they occurred. |
| Direct labor is considered a product cost, although not all labor is always under product cost and must be defined as so. | Period cost also includes labor, and it is for any labor not directly related to the production, such as janitorial staff or the marketing team. |
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