Explanation:
The period cost is the cost that is incurred with the passage of time. It mainly involves the major portion of the selling and administration expenses like - selling expenses, advertising expenses. It is a fixed cost
While the product cost involves the cost related to the product. It involves direct material cost, direct labor cost, and the manufacturing overhead cost. It is a variable cost
So, the period cost is the operating cost that are expenses when it is incurred
Whereas the product cost is treat as an asset for external financial reporting. First this is recorded as an asset on the balance sheet until asset is sold and then it is transferred to the cost of goods sold i.e expense account
Now on the income statement the product cost or cost of goods sold is subtracted from the sales revenue so that the gross profit could come
Then the period cost is deducted to find out the operating income
Now the classification of the product cost and the period cost are as follows
Shaft and handle of weed trimmer = Direct material cost
Motor of weed trimmer = Direct material cost
Factory labor for workers assembling weed trimmers = Direct labor cost
Nylon thread used by the weed trimmer (not traced to the product) = Manufacturing overhead cost
Glue to hold housing together = Manufacturing overhead cost
Plant janitorial wages = Manufacturing overhead cost
Depreciation on factory equipment = Manufacturing overhead cost
Rent on plant = Manufacturing overhead cost
Sales commissions = Period cost
Administrative salaries = Period cost
Plant utilities = Manufacturing overhead cost
Shipping costs to deliver finished weed trimmers to customers = Period cost
