Difference Between Product Costs and Period Costs

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 27, 2023

In a manufacturing organization, an important difference exists between product costs and period costs.

Product Costs

Product costs (also known as inventoriable costs) are costs assigned to products.

These costs are identified as being either direct materials, direct labor, or factory overheads, and they are traceable or assignable to products.

Product costs only become an expense when the products to which they are attached are sold. Product costs are also related to manufacturing activities.

Examples of product costs include the cost of raw materials used, depreciation on plant, expired insurance on plant, production supervisor salaries, manufacturing supplies used, and plant maintenance.

Types of Product Costs

Period Costs

Period costs are expired non-product costs. They are identified with measured time intervals and not with goods or services.

Period costs can be defined as any cost or expense items listed in the firm’s income statement.

Examples of period costs include selling costs and administrative costs.

Both of these costs are considered period costs because selling and administrative expenses are used up over the same period in which they originate.

In other words, period costs are related to the services consumed over the period in question.

Types of Period Costs

In a manufacturing organization, an important distinction exists between product costs and period costs.

Difference Between Product Costs and Period Costs FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.