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Period costsand productcosts space two categories of expenses for a company that space incurred in producing and also selling their productor service.Below, we explain each and also how they differ from one another.

Product costs are those directly related come the production of a product or service intended because that sale.Period prices are all other indirect expenses that room incurred in production.Overhead and also sales & marketing expenses are common examples of duration costs.

Product costs

Product prices are the direct costs connected in creating a product. A manufacturer, for example, wouldhave product prices that include:

Direct laborRaw materialsManufacturing suppliesOverhead that is straight tiedto the manufacturing facility such as electricity

For a retailer, the productcosts would incorporate the provides purchased native a supplier and any other costs connected in happen their items to market.In short, any costs occurs in the procedure of acquiring or production a product are taken into consideration product costs.

Productcosts are frequently treated as inventory and also are described asinventoriable costs because these costs are provided to value the inventory. When assets are sold, the product expenses become component of prices of items sold as displayed in the earnings statement.

period Costs

Period expenses are all expenses not included in product costs. Duration costs are not straight tied come the manufacturing process. Overhead or sales, general, and administrative (SG&A) costs are considered period costs. SG&A includescosts ofthe corporate office, selling, marketing, and also the overall management of company business.

Period expenses are not assigned come one details product or the cost of inventory favor product costs. Therefore, period costs are provided as an expense in the accounting duration in which they occurred.

Other instances of period costs encompass marketing expenses, rental (not directly tied to a productionfacility), office depreciation,and indirect labor. Also, interest price on a company"s debt would certainly be classified together a duration cost.

Considerations in Production costs Calculations

Both product prices and period costs mat be either solved or variable in nature.

Production prices are usually component of the variable expenses of business since the amount invested will vary in proportion to the quantity produced. However, the expenses of machinery and operational spaces are most likely to be fixed proportions of this, and these may well appear under afixed costheading or be taped as depreciation ~ above a separate accountancy sheet.

The person producing the production cost calculation, therefore, has to decide whether these expenses are currently accounted for or if they need to be a part of the all at once calculation of production costs.

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Also, fixed and variable expenses may be calculated differently at different phases in a business"slife cycleor audit year. Whether the calculation is forforecasting or report affects the suitable methodology together well.