Product Costs Vs Period Costs

Product costs and period costs are both the parts of business cost. Both are shown in the income statement. But, as per cost accounting, we can differentiate product costs with period costs.

Product costs include cost of raw material, cost of labor and manufacturing overhead cost. For example, if you have made the table, you have bought wood for this, it is raw material and its cost will include in wooden table. You have also paid laborers for making table from raw wood. This will be the part of table cost. We have also bought nails. Nails are indirect materials which is the part of manufacturing overheads.

One Table Product Costs

Cost of Wood = Rs. 150

Cost of Laborer = Rs. 400

Cost of Nails = Rs 10

Cost of Electricity = Rs. 20

Cost of Supervisor = Rs. 30

Total Cost of One Table = Rs. 610

If one product’s total cost is Rs. 610, we have to pay Rs. 6100 for producing 10 tables.

Period cost is not paid for production of product. So, we cannot assign period cost on each product because its relation is only with time. For example if you have taken loan, you have to pay annual interest. This annual interest will be period cost. If you have bought insurance policy, its premium will be period cost. So, all period cost will be administrative and financial costs.