Question

What is the difference between product costs and period cost? Give example?

Answer 1

Answer

• Product Cost is that cost that is attributable to a product.
  This is the cost that has been incurred in the actual production of a product.
  Product Cost includes direct material, direct labor, manufacturing overheads.
  Example of Product Cost can be:
  --Material used in the production process,
  --Labor wages paid to production workers,
  --Depreciation of factory Equipment, etc
• Period Costs are the cost that are incurred not in relation to the production of a product.
  These include general administrative and selling expenses, both fixed as well as variable.
  These are not added to the cost of the product.
  Example would include:
  --Office rent paid.
  --Expenses in advertising.
  --Salaries of office employees, etc