Question

What is the difference between product and period costs?

Answer 1

Answer

• The differentiation can be made on following points:

Product Cost:	Period Cost:
>Product costs the cost that can be attributed to the production of a product.	>These are not related to the production of the product.
>Product costs include direct material cost, direct labor cost, and manufacturing overheads.	>These cost includes Selling expenses, General and Administrative expense, and are not incurred in relation to factory or production.
>Under Variable costing, FIXED manufacturing overhead is not considered to be a part of Product Cost.	>Fixed manufacturing overhead IS CONSIDERED to be Period Cost under Variable costing.
>Under Absorption costing, BOTH variable manufacturing overhead AND fixed manufacturing overhead form part of the product cost.	>BOTH Variable and Fixed selling and administartive expense are considered PERIOD cost under BOTH Variable and Absorption costing method.