Period costs

Definition

Period costs are all costs that are not included in product costs and are expensed in the period they are incurred. These typically include selling, general, and administrative expenses.

5 Must Know Facts For Your Next Test

1. Period costs are not tied to the production process and do not vary with production levels.
2. These costs are expensed on the income statement in the period they occur.
3. Examples of period costs include office rent, marketing expenses, and executive salaries.
4. Period costs contrast with product costs, which are capitalized as inventory until sold.
5. Period costs are crucial for calculating net income but do not appear in the cost of goods sold.

Review Questions

• What types of expenses fall under period costs?
• How do period costs differ from product costs?
• Where are period costs recorded in financial statements?

Related terms

Product Costs:

Costs that are directly tied to the production of goods and include direct materials, direct labor, and manufacturing overhead.

Fixed Costs:

Costs that remain constant regardless of production levels within a relevant range.

Variable Costs:

Costs that vary directly with the level of production or sales volume.