Differences between Product costs and Period costs

Product costs which are also called as manufacturing cost are those costs which company has to pay when it decides to produce or manufacture the product. Example of product costs are raw material expenses or wages paid to direct labor for carrying out the production. The total amount of cost increases as company increase the production, so if company decides to produce 200 units and direct costs are $10 per unit then total product cost will be $2000, if company increases the production to 400 units then total cost will be $4000.

Period costs are those costs which are incurred or company has to pay them irrespective of whether company produces or manufactures the product or not. They are also called non- manufacturing cost because they are not required for manufacturing of the products. Examples of period cost are rent paid by the company for the building in which manufacturing take place, or insurance premium paid for the machinery or building. The total amount for period cost remain same for any level of output, however per unit cost declines as company produces more unit of output. So if company has $2000 of period cost and company produces 200 units then per unit cost would be $10 and if company produces 400 units then per unit cost will decline to $5.

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