Question

period costs are: costs expensed on the income statement when incurred, are added to the cost of the inventory, include direct labor, are equal to the product costs?

Answer 1

A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event. Since a period cost is essentially always charged to expense at once, it may more appropriately be called a period expense. A period cost is charged to expense in the period incurred. This type of cost is not included within the cost of goods sold on the income statement. Instead, it is typically included within the selling and administrative expenses section of the income statement. Examples of period costs are:

• Selling expenses

• Advertising expenses

• Travel and entertainment expenses

• Commissions

• Depreciation expense

• General and administrative expenses

• Executive and administrative salaries and benefits

• Office rent

• Interest expense (that is not capitalized into a fixed asset)

The preceding list of period costs should make it clear that most of the administrative costs of a business can be considered period costs.