Period Costs

Some terms are difficult to define. In one school of thought, period costs are the any costs that are not product costs. But, such a description is a stretch, because it fails to consider expenditures which will be of benefit for number of years, such as the cost of acquiring land, buildings, etc. It is the best to relate period costs to presently incurred expenditures which relate to SG&A activities. These costs do not logically link to inventory, and should be expensed in the time incurred.

It is fair to say that the product costs are inventorial manufacturing costs, and the period costs are the nonmanufacturing costs that should be expensed within the time incurred. This distinction is significant, as it paves the way for the relating to financial statements of the product producing the company. And, the relationship between these costs can diverge considerably based upon product produced. A soft drink manufacturer may spend very little on producing the product, but much on selling. On the other hand, a steel mill may have high inventory costs, but very low selling expenses. Managing a business will need you to be keenly aware of its cost its structure.