Difference Between Product Costs and Period Costs

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 27, 2021

In a manufacturing organization, an important distinction exists between product costs and period costs.

Product Costs

Product costs (also known as inventoriable costs) are costs assigned to products. These costs are identified as being either direct materials, direct labor, or factory overheads, and they are traceable or assignable to products. 

Product costs only become an expense when the products to which they are attached are sold.

Product costs are related to manufacturing activities. Examples of product costs include the raw materials used, depreciation on plant, expired insurance on plant, production supervisor salaries, manufacturing supplies used, plant maintenance, and so on.

Types of Product Costs

Period Costs

Period costs are expired non-product costs. They are identified with measured time intervals and not with goods or services. Period costs can be defined as any cost or expense items listed in the firm’s income statement

Examples of period costs include selling costs and administrative costs. 

Both of these costs are considered period costs because selling and administrative expenses are used up over the same period during which they originate. That is to say, period costs are related to the services consumed over the period in question.

Types of Period Costs

In a manufacturing organization, an important distinction exists between product costs and period costs.

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