Period costs are those costs which a company has to pay irrespective of whether company manufactures the product or not. In simple words period costs are like fixed costs, period cost can be classified in following way –
- Administrative Expenses – These expenses are those expenses which are required to be paid by a company in order to run the company. It includes salaries paid to workers, rent paid for the office space used by the company and so on.
- Selling and distribution Expenses – These expenses include those cost which are associated with selling of final product. So for example this will include rent and insurance of warehouse where goods which are to be sold are kept, advertisement expenses and other such expenses.
- Financial Expenses – These expenses include expenses which are associated with loans which the company has taken, those loans may be short term of long term. Whether company produce a product or not it has to pay monthly interest payment to the bank, because of loan taken and therefore these expenses are included in period costs.
Above classification of period cost is not exhaustive and there can be many other ways of classifying period costs depending on the type of industry in which company is operating and also different companies have different policies when it comes to classification of costs.