vefth.blogg.se - Difference between fixed variable and periodic expenses

In general, the variable cost is considered as product cost because they change with the change in the activity level.On the other hand, time is taken as a basis for period cost because as per the matching principle the expenses should match the revenue and therefore, the costs are ascertained and charged in the accounting period in which they are incurred. Product Cost is based on volume because they remain same in the unit price, but differ in the total value.Period Cost is the cost which relates to a particular accounting period. Product Cost is the cost which can be directly assigned to the product.The following are the major differences between product cost and period cost: Key Differences Between Product Cost and Period Cost By virtue of this concept, period costs are also recorded and reported as actual expenses for the financial year.Īll the non-manufacturing costs like office and general expenses are considered as Period Cost like interest, salary, rent, advertisement, commission to the salesman, depreciation of office assets, audit fees, etc. So, if the revenues are recognised for an accounting period, then the expenses are also taken into consideration irrespective of the actual movement of cash. These costs occur during a financial year, but they are not considered at the time of valuing the inventory because they are not associated with the purchase and sale of goods.Īccording to the Matching Principle, all expenses are matched with the revenue of a particular period. These costs are charged against the sales revenue for the accounting period in which they take place.

The cost which cannot be allocated to the product, but belongs to a particular period is known as Period Cost. An example of such cost is the cost of material, labour, and overheads employed in manufacturing a table. On the other hand, in Marginal Costing only the variable cost is regarded as product cost. Under different costing system, product cost is also different, as in absorption costing both fixed cost and variable cost are considered as Product Cost. It should be calculated for the purpose of product pricing.

It helps in the preparation of financial statement.

The cost is included in the valuation of inventory that is why it is also known as Inventoriable costs. The following are the objective of computing product cost: These costs can be apportioned to products. Simply put, the cost which is a part of the cost of production is product cost. These costs are associated with the procurement and conversion of raw material to finished goods ready for sale. The cost which is directly related to the buying and selling of the merchandise is known as Product Cost. Salary, rent, audit fees, depreciation on office assets etc. office & administration, selling & distribution, etc.Ĭost of raw material, production overheads, depreciation on machinery, wages to labor, etc. Which cost is regarded as Product / Period Cost?Īre these costs included in inventory valuation? The cost that cannot be assigned to the product, but charged as an expense is known as Period cost. The cost that can be apportioned to the product is known as Product Cost. So, take a read of the article, that sheds light on the differences between product cost and period cost. These two type of costs are significant in cost accounting, that most people don’t understand easily. Period costs are based on time and mainly includes selling and administration costs like salary, rent etc. Product cost comprises of direct materials, direct labour and direct overheads.