ENUMERATE PRINTEDLY THE SIMILIARITIES AND DIFFERENCES BETWEEN PERIOD COST AND PRODUCT COST?


ENUMERATE PRINTEDLY THE SIMILIARITIES AND DIFFERENCES BETWEEN PERIOD COST AND PRODUCT COST?
INTRODUCTION
Costs may be classified as product costs and period costs. This classification is usually used for financial accounting purposes. A brief explanation of product costs and period costs is given below:
PERIOD COST
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.
PRODUCT COST:
Product cost refers to the costs used to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead. Product cost can also be considered the cost of the labor required to deliver a service to a customer. In the latter case, product cost should include all costs related to a service, such as compensation, payroll taxes, and employee benefits.

THE SIMILIARITIES BETWEEN PERIOD COST AND PRODUCT COST
PRODUCT AND PERIOD COSTS The concepts of product and period costs are similar to direct and indirect costs. Product costs are those that the firm’s accounting system associates directly with output and that are used to value inventory. Under a direct or variable cost accounting system, only direct or variable costs are charged to production. Indirect costs such as property taxes, insurance, depreciation on plant and equipment, and salaries of supervisors are considered period costs. Period costs are charged as expenses to the current period. Under direct costing, period costs are not viewed as costs of the products being manufactured, so they are not associated with valuing inventories.
If the firm uses a full cost accounting system, however, then all manufacturing costs—including fixed manufacturing overhead costs and variable costs—become product costs. They are considered part of the cost of manufacturing and are charged against inventory

DIFFERENCES BETWEEN PERIOD COST AND PRODUCT COST

PERIOD COST AND PRODUCT COST
PERIOD COST PRODUCT COST
1.The costs that are not included in product costs are known as period costs. Usually, these costs are not part of the manufacturing process and are therefore treated as expense for the period in which they arise.
1.Product costs (also known as inventoriable costs) are those costs that are incurred to acquire or manufacture a product. For a manufacturing company, theses costs usually consist of direct materials, direct labor, and manufacturing overhead.

2.Period costs are not attached to products and company does not need to wait for the sale of products to recognize them as expense. According to generally accepted accounting principles (GAAP), all marketing, selling and administration costs are treated as period costs. Examples of these costs include office rent, interest, depreciation of office building, sales commission and advertising expenses etc
2.Product costs are initially treated as inventory and do not appear on income statement until the product for which they are incurred is sold. When the product is sold, these costs are transferred to cost of goods sold account. For example, if a company manufactures 50 units of product X and sells only 30 units in 2013

3.Period costs are expenses that are easier to attribute to times and accounting periods than actual production processes or finished goods. Product costs, on the other hand, are expenses that are incurred to manufacture a good and can typically be traced back to a specific product. In other words, product costs are the expenses incurred to produce something.
4.Period costs are expensed on the income statement when they are incurred. Take advertising expenses for example. Product costs, on the other hand, are capitalized as inventory on the balance sheet. Raw materials are not expensed when they are purchased.
5.All costs not included in product costs are called period costs. Since these costs are not involved in the production process, they are not treated differently on an income statement following a sale. Costs incurred in the process of acquiring or manufacturing a product are considered product costs.
6.Period costs are basically all costs other than product costs. These are not incurred on the manufacturing process and therefore these cannot be assigned to cost goods manufactured. Period costs are thus expensed in the period in which they are incurred.
Product costs cling to the units of products purchased or manufactured. If a unit is unsold, the product costs will be reported as inventory, a current asset on the balance sheet.

7.The period costs are usually associated with the selling function of the business or its general administration. The product costs of direct materials, direct labor, and manufacturing overhead are also “inventoriable” costs, since these are the necessary costs of manufacturing the products.
8.A period cost is more closely associated with the passage of time than with a transactional event. Product cost can be recorded as an inventory asset if the product has not yet been sold. It is charged to the cost of goods sold as soon as the product is sold (see the Matching Principle), and appears as an expense on the income statement.
9. The period costs are usually associated with the selling function of the business or its general administration. Product cost is not a selling function
10. A period cost is more closely associated with the passage of time than with a transactional event. A product cost is more closely associated with a transactional event.
11. Period cost does not appear in the financial statements, since it does not includes the manufacturing overhead that is required by both GAAP and IFRS.
Product cost appears in the financial statements, since it includes the manufacturing overhead that is required by both GAAP and IFRS.

12. Period cost cannot be recorded as an inventory asset Product cost can be recorded as an inventory asset if the product has not yet been sold.
13. Period cost cannot be considered as the cost of the labor . Product cost can also be considered the cost of the labor required to deliver a service to a customer.
14. period cost is used in all areas of accounting Product cost is used in the manufacturing sector
15. period cost occurs during sales and inventory. Product cost will occur during the process of manufacturing the product as: direct material, direct labor, and/ or indirect overhead cost.

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