Question

What product costs and period costs go into McDonald’s French fries?

McDonald’s recently released a video featuring Grant Imahara, a former host from “Mythbusters,” about how its French fries are made. Some people have said that its French fries are mashed-up potatoes (or other ingredients) pressed into French fry shapes.

Questions

1. What is the distinction between product costs and period costs?
2. Why is it important to sort costs into product costs and period costs?
3. What are some product costs related to McDonald’s French fries?
4. What are some period costs related to the manufacture and sale of McDonald’s French fries?

Answer 1

Distinction between product costs and period costs

In view of the relationship with the product, cost can be delegated product cost and period cost. Product Cost is the cost that is inferable from the product, for example the cost which is discernible to the product and is a piece of stock qualities. Actually, Period Cost is only inverse to product cost, as they are not identified with production, they can't be allotted to the product, as it is charged to the period in which they emerge.

1) On the basis of meaning :

The cost that can be attributable to the product is known as Product Cost.

The cost that cannot be attributable to the product, but charged as an expense is known as Period cost.

2) Based on variability :

Product cost : Variable Cost

Period cost : Fixed Cost

3) Based on components:

product costs are Manufacturing or Production costs

period costs are Non-manufacturing cost, i.e. office & administration, selling & distribution, etc..

4) part of production or process cost

product cost is part of cost of production but period cost is not.

Importantance to sort costs into product costs and period costs :

Since product and period costs legitimately sway your budget reports, you have to appropriately sort and record these costs so as to guarantee precise financial statements.

overseeing product and period costs will assist you with setting up more exact estimating levels for your products. Monitoring the absolute costs engaged with assembling a thing, including backhanded costs, will assist with guaranteeing that your products aren't priced excessively low or excessively high, however are valued to procure your business a benefit, something each entrepreneur endeavors to accomplish. It is crucial to distinguish Product and Period costs, because Product costs will form part in Cost of Inventory and reflected in Balancesheet, but Period costs not

some product costs related to McDonald’s French fries

Cost of purchasing or procuring Potatoes, Oil, Cheff's Salaries, annd other workers wages wwhose work is directly related to producing products and Other taste ingredients like Salt, pepper, sauces, cheese..etc.

period costs related to the manufacture and sale of McDonald’s French fries:

Deprecation, Advertising, rent of restaurant and other equipments, Commissions to sales agents, and other administative and selling overheads etc.,

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