Product Versus Period Costs

Product Versus Period Costs - Period costs are costs that...

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PRODUCT VERSUS PERIOD COSTS Alternative Terminology Product costs are also called inventoriable costs. Each of the manufacturing cost components—direct materials, direct labor, and manufacturing  overhead—are product costs. As the term suggests,  product costs  are costs that are a necessary and  integral part of producing the finished product. Companies record product costs, when incurred, as  inventory. Under the matching principle, these costs do not become expenses until the company sells  the finished goods inventory. At that point, the company records the expense as cost of goods sold.
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Unformatted text preview: Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product. These are nonmanufacturing costs. Period costs include selling and administrative expenses. In order to determine net income, companies deduct these costs from revenues in the period in which they are incurred. Illustration 14-4 summarizes these relationships and cost terms. Our main concern in this chapter is with product costs. Illustration 14-4 Product versus period costs...
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Product Versus Period Costs - Period costs are costs that...

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