Product Cost vs Period Cost

Difference Between Product Cost and Period Cost

The key difference between product cost and the period cost is that product costincurs when a company produces any products. Therefore, such costs are apportioned to a product. Period costs incur with time. Consequently, they are not apportioned to any product but charged as an expense in the income statement.

In business, the cost is a significant concern, and it is mainly associated with the production of revenue. It is often crucial to a company’s competence to improve its margins and market share in the long run. There are different business costs, like variable, fixed, period, or product costs.

What is Product Cost?

As the name suggests, product costs are derived from producing major types of products by the business. Product cost is only incurred in the business when some product is acquired or produced. If there is no production of any goods, the business will incur no product cost.

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Product Cost vs Period Cost (wallstreetmojo.com)

What does Period Cost Mean?

Period cost refers to the passage of time incurred by the businesses even if there is no production of goods or inventory purchase. Therefore, a period cost is generally recorded in the books of accounts with inventory assets.

Period Cost vs. Product Cost Infographics

Let’s see the top differences between period cost and product cost.

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Product Cost vs Period Cost (wallstreetmojo.com)

Key Differences

The key differences are as follows –

product-cost-vs-peroid-cost

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Product Cost vs Period Cost (wallstreetmojo.com)

Period vs. Product Cost Comparative Table

Period CostProduct Cost
Period costs are not apportioned as they cannot be assigned to any products but are charged as an expense.The product cost is apportioned to the products as they are directly related to the production of goods and services.
The basis of this cost is time.The basis of this cost is volume.
The cost comprises office and administrative costs, selling and distribution cost, etc.The cost comprises manufacturing or production cost.
Period cost is not a part of the cost of production.The product cost is often a part of the cost of production.
A period cost is generally fixed like salaries, rent and is revised yearly.Product cost is generally variable as it depends on the production of goods.
Examples of period costs are audit fees, sales fees, rent of the office building, etc.Examples of product cost are raw material, direct labor, factory rent, inventory, etc.

Conclusion

Separating the costs into various categories is often very important and, at times, useful to analyze the company’s significant cost driversCost DriversA cost driver is a unit that derives the expenses and sets a basis on which a particular cost is to be allocated between the different departments and on the basis of that driver’s activity completed in that particular period the cost is allocated. These are the structural determinants of the activities on which cost is being incurred and determine the behavior of the costs on an activity.read more. In addition, cost analysis is critical to examine the position of the business and the amount of revenue it needs to generate to achieve economies of scale.

Business often segregates these costs based on fixed, variable, direct, or indirect. Each company should ponder upon the various expenses they incur over the period, making the business more self-reliant and cost-efficient.

Recommended Articles

This article has been a guide to the Period Cost vs. Product Cost. Here we discuss the top differences between them and infographics and a comparison table. You may also have a look at the following articles –

Reader Interactions

Comments

  1. CS says

    Hi, shoudn’t the titles in the infographic chart be reversed…?
    It states Product Costs on the left, but the text used refers to Period costs…?

    • Dheeraj Vaidya says

      Yes, many thanks for pointing this out. Will get this error rectified asap.

Leave a Reply

Your email address will not be published. Required fields are marked *