Difference Wiki

Product Cost vs. Period Cost: What's the Difference?

Edited by Huma Saeed || By Sumera Saeed || Published on November 28, 2023
Product cost refers to costs directly tied to creating a product, while period cost pertains to costs incurred during a specific time frame regardless of production.

Key Differences

Product cost encompasses all the expenses directly related to the manufacturing or production of an item. On the contrary, period cost relates to the expenses that a company incurs over a specific period, irrespective of how many goods they produce.
Sumera Saeed
Nov 28, 2023
Considering an item's selling price, the product cost comprises the expenses that go into its creation, from raw materials to labor. In contrast, period cost isn't linked to production volume but instead to a company's operational timeframe, like monthly or annually.
Sumera Saeed
Nov 28, 2023
From an accounting perspective, product costs are often included in inventory valuations. In contrast, period costs, since they don't tie directly to production, are usually expensed in the period they occur.
Sumera Saeed
Nov 28, 2023
Industries that focus on manufacturing or production pay close attention to product costs as they determine the cost of goods sold (COGS). Businesses, irrespective of the industry, deal with period costs as they encompass rent, salaries, and other time-based expenses.
Sumera Saeed
Nov 28, 2023
Product cost can fluctuate based on production efficiency, quantity, and input costs. Simultaneously, period costs can remain fixed, like monthly rent, or variable, like quarterly advertising campaigns, but remain independent of production volumes.
Sumera Saeed
Nov 28, 2023
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Comparison Chart

Relation

Directly tied to production.
Related to time, not production.
Sumera Saeed
Nov 28, 2023

Examples

Raw materials, labor, manufacturing overhead.
Rent, salaries, advertising.
Sumera Saeed
Nov 28, 2023

Accounting

Capitalized in inventory and COGS.
Expensed in the period they occur.
Sumera Saeed
Nov 28, 2023

Fluctuation

Varies with production levels.
Independent of production volumes.
Sumera Saeed
Nov 28, 2023

Purpose

Determine cost of producing an item.
Manage and track operational expenses over time.
Janet White
Nov 28, 2023
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Product Cost and Period Cost Definitions

Product Cost

The direct expenses of producing an item.
The product cost for the shoes includes leather, laces, and labor.
Huma Saeed
Oct 31, 2023

Period Cost

Operational costs expensed as incurred.
The quarterly financials showed a spike in period cost due to training programs.
Janet White
Oct 31, 2023

Product Cost

Cumulative cost of materials, labor, and overhead for an item.
Inefficiencies in the factory increased the product cost of the gadgets.
Sumera Saeed
Oct 31, 2023

Period Cost

Costs unrelated to product creation or volume.
The CEO's annual salary is a fixed period cost.
Sumera Saeed
Oct 31, 2023

Product Cost

Costs capitalized in inventory until sold.
The company's financial statement showed a high product cost in inventory.
Sumera Saeed
Oct 31, 2023

Period Cost

Time-based business expenses, not production-based.
Advertising campaigns in December resulted in high period costs.
Sumera Saeed
Oct 31, 2023

Product Cost

Amount spent to manufacture goods.
By sourcing cheaper materials, the company reduced its product cost.
Sumera Saeed
Oct 31, 2023

Period Cost

Costs that remain constant irrespective of production.
Even if the factory halts production, the period cost for utilities remains the same.
Aimie Carlson
Oct 31, 2023

Product Cost

Expenses that vary with production volume.
When production doubled, the product cost also saw a significant rise.
Harlon Moss
Oct 31, 2023

Period Cost

Expenses recognized in a specific time frame.
The monthly rent for the warehouse is a period cost.
Huma Saeed
Oct 31, 2023

FAQs

Can product cost change over time?

Yes, product cost can fluctuate based on factors like material prices, labor rates, and production efficiency.
Sumera Saeed
Nov 28, 2023

What is product cost?

Product cost refers to the total expenses directly associated with producing a specific item.
Sumera Saeed
Nov 28, 2023

How is period cost defined?

Period cost pertains to the expenses a company incurs during a specific timeframe, unrelated to production.
Huma Saeed
Nov 28, 2023

How does product cost affect selling price?

Product cost is a primary component of the cost of goods sold (COGS), influencing the final selling price of an item.
Sumera Saeed
Nov 28, 2023

When are period costs recognized in accounting?

Period costs are typically expensed in the accounting period they occur.
Sara Rehman
Nov 28, 2023

Can period costs impact a company's profit?

Yes, high period costs can reduce profits, especially if they don't result in increased revenue or efficiencies.
Sumera Saeed
Nov 28, 2023

Are period costs always fixed?

No, period costs can be fixed, variable, or mixed, but they don't depend on production volumes.
Sara Rehman
Nov 28, 2023

Why is product cost important for manufacturers?

Product cost helps determine profitability and informs pricing strategies for manufacturers.
Aimie Carlson
Nov 28, 2023

Can a company have high product costs and low period costs?

Yes, a company might invest heavily in production but have minimal administrative or other non-production expenses.
Sumera Saeed
Nov 28, 2023

Can advertising be a period cost?

Yes, advertising expenses are considered period costs as they are time-based, not production-based.
Harlon Moss
Nov 28, 2023

Do service companies have product costs?

Typically, service companies don't have "product costs" in the traditional sense but may have costs related to service provision.
Aimie Carlson
Nov 28, 2023

Is period cost the same as operational cost?

While all period costs are operational costs, not all operational costs are period costs. Period costs are strictly time-based.
Janet White
Nov 28, 2023

Are machine maintenance costs considered product costs?

If the maintenance directly supports production, it's a product cost. Otherwise, it's a period cost.
Sumera Saeed
Nov 28, 2023

How do companies manage period costs?

Companies set budgets, track expenses, and analyze variances to manage period costs effectively.
Sumera Saeed
Nov 28, 2023

What are some examples of product costs?

Examples include raw materials, direct labor, and manufacturing overhead.
Aimie Carlson
Nov 28, 2023

How is product cost different from selling cost?

While product cost involves production expenses, selling cost relates to expenses incurred to sell that product.
Aimie Carlson
Nov 28, 2023

Can period costs be deferred?

Generally, period costs are expensed as incurred, but in certain circumstances, they may be deferred.
Sara Rehman
Nov 28, 2023

How do period costs affect income statements?

Period costs directly impact the expense section of the income statement, influencing net income.
Janet White
Nov 28, 2023

Do period costs include research and development?

Yes, research and development costs are typically considered period costs as they are expensed in the period incurred.
Sumera Saeed
Nov 28, 2023

Can an item's product cost be higher than its selling price?

Yes, companies might sometimes sell products at a loss due to various strategic reasons.
Harlon Moss
Nov 28, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Huma Saeed
Huma is a renowned researcher acclaimed for her innovative work in Difference Wiki. Her dedication has led to key breakthroughs, establishing her prominence in academia. Her contributions continually inspire and guide her field.

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