Question

Explain the difference between a product cost and a period cost? Provide 2 examples of each for a computer manufacturer

Answer 1

Product Cost & Period Cost: Product Cost is a cost which are incurred only when the produciton is done. Means if there is no production than no production cost incurred. In the period cost cost is incurred even there is no production is done.

Product cost are initially recorded with inventory cost and other related production cost like Direct material and Direct wages so these costs product cost which are charged on the production and shown in revenue account as expennses when the finished goods is sold. So if there is closing stock or goods are not sold than the product cost will not shown in the revenue account.

Period cost are recorded preiodically in all condittion like rent of factory, depreciation of plant etc., so these cost are charged to revenue account even there is single unit is not produced.

Examples:

Product Cost: Ram , Hard Disk, Wires, Cover Box of Computer, Computer Scree,.

Period cost: Depreciation of plant, Rent of Factory, insurance of the factory,