What is Product Cost and Period Cost? Difference between Product Cost and Period Cost.

Topic Overview

  • Product Costs are directly attributable to the product, such as Direct Raw Materials, Direct Labour and Direct Overheads
  • Period Costs are not the part of production such Administrative Overhead, Selling Overhead and Distribution Overhead
  • Product Costs helps to determine Product pricing, but period cost is not related with product pricing
  • Product costs helps to determine Break Even Point
  • Period Costs Charged against revenue
  • Product Cost on the Balance Sheet until the product is sold, Period cost charged on the Income Statement.

General Concept

There is two types of costs associated with the product. These two types of costs are – Product Costs and Period Costs. Product Cost is the cost that is directly attributable to the product. The product cost is traceable to the product and is a part of inventory values. On the other hand, the period is opposite to the product cost , and is not related with the production. Period Cost cannot be apportioned to the product and it is charged to the period in which they arise. Product costs are comprises as Direct Materials Cost, Direct Labour Cost, and Direct Overheads. Period costs are comprises as Administrative costs, Selling Overhead Costs and Distribution costs.

Product Cost Definition

Product cost is the cost which is directly attributable to the product. This cost is directly related to the buying and selling of merchandise. Product costs are associated with the procurement and conversion of raw materials to finished goods ready for sale.

This cost is called as product cost because it is directly related to production costs. Product Costs are apportioned to the products. As product cost is included in the valuation of inventory, is called inventoriable cost. Product Cost help to determine product pricing and to prepare the financial ststement of the company.

Period Cost Definition

Period Cost is the cost which is not assigned to calculate product cost but is charged as expenses against the sales revenue of the period in which it is incurred. All kind of non-manufacturing costs like administrative costs, selling costs, and distribution costs are treated as period costs.

Difference between Product Cost and Period Cost

Sl No.Product CostPeriod Cost
1Product Costs are the costs which is incurrred to manufacture the products.Period Costs is the costs which is charged against revenue on a time period basis.
2Direct Materials, Direct Labour and Direct Overhead, or manufacturing overhead are the example of Product costs.Administrative Overhead, Selling Overhead and Distribution Costs are the example of period costs.
3Product cot is often called as inventory cost or manufacturing costsPeriod Costs are not related with the manufacturing process.
4Product costs are shown in the balance sheet as a current Assets until the product is sold.These costs are reported on the income statement as they are incurred.
5This system help to determine theBreak-even-pointThese system is not used to determine Break Even Point (BEP)

6Products are the part of inventory valautionPeriod Costs is not used for inventory valuation.