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Period costsand productcosts room two category of prices for a company that are incurred in producing and also selling their productor service.Below, we describe each and how they differ from one another.

Product expenses are those straight related to the manufacturing of a product or business intended because that sale.Period costs are all other indirect prices that are incurred in production.Overhead and also sales & marketing costs are typical examples of period costs.

Product prices

Product expenses are the straight costs affiliated in producing a product. A manufacturer, for example, wouldhave product prices that include:

Direct laborRaw materialsManufacturing suppliesOverhead that is straight tiedto the manufacturing facility such together electricity

For a retailer, the productcosts would incorporate the gives purchased from a supplier and also any other costs involved in bringing their items to market.In short, any kind of costs occurs in the procedure of gaining or manufacturing a product are taken into consideration product costs.

Productcosts are often treated as inventory and are referred to asinventoriable costs due to the fact that these expenses are supplied to worth the inventory. When products are sold, the product costs become component of costs of products sold as presented in the revenue statement.

duration Costs

Period costs are all costs not contained in product costs. Period costs are not straight tied to the manufacturing process. Overhead or sales, general, and administrative (SG&A) expenses are considered period costs. SG&A includescosts ofthe corporate office, selling, marketing, and also the overall management of company business.

Period prices are no assigned come one specific product or the cost of inventory favor product costs. Therefore, duration costs are listed as an cost in the accounting duration in which castle occurred.

Other examples of duration costs incorporate marketing expenses, rental (not directly tied come a productionfacility), office depreciation,and indirect labor. Also, interest price on a company"s debt would be classified together a period cost.

Considerations in Production prices Calculations

Both product expenses and period costs mat be either resolved or variable in nature.

Production prices are usually component of the variable costs of business since the amount invested will vary in proportion come the amount produced. However, the prices of machinery and also operational spaces are likely to be resolved proportions that this, and these may well show up under afixed costheading or be taped as depreciation ~ above a separate bookkeeping sheet.

The person developing the production expense calculation, therefore, needs to decide even if it is these costs are already accounted because that or if they should be a component of the all at once calculation of production costs.

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Also, fixed and also variable prices may it is in calculated in different way at different phases in a business"slife cycleor audit year. Even if it is the calculation is forforecasting or report affects the ideal methodology together well.