What is the Difference Between Period Cost and Product Cost?

The difference between period costs and product costs lies in their association with the production process and their timing. Here are the key distinctions between the two:

Product Costs:

1. Directly related to the production of a product or service intended for sale.
2. Include direct materials, direct labor, and factory overhead.
3. Often treated as inventory and referred to as "inventoriable costs".
4. Initially recorded within the inventory asset, and once the related goods are sold, the capitalized costs are charged to expense.

Period Costs:

1. All other indirect costs that are incurred in production.
2. Not directly tied to the production process and are considered period costs.
3. Include overhead, sales, general, and administrative (SG&A) expenses, and rent not directly tied to a production facility.
4. Not assigned to one particular product or the cost of inventory like product costs, and are listed as an expense in the accounting period in which they occurred.

In summary, product costs are directly associated with the production of goods or services and are often treated as inventory, while period costs are indirect costs that are incurred throughout the production process and are not assigned to any specific product.

Comparative Table: Period Cost vs Product Cost

The main difference between product costs and period costs lies in their relationship with the production process. Product costs are directly related to the production of goods and can be assigned to a specific product, while period costs are not directly tied to the production process and are not assigned to any specific product. Here is a table summarizing the differences between product costs and period costs:

In summary, product costs are always related to production and are considered as inventoriable costs, while period costs are indirect or overhead costs not directly tied to production.