Chapter 18, Problem 5QS

To determine

Introduction:

Product cost: The cost incurred in the production of a product or purchase of products. The product cost is associated with production and the company incurs no production cost if the company has no production or purchase during the specific period. Direct materials, direct labor used in the production, factory overheads and any other resources used in the production are included in product costs. Examples are raw materials, factory depreciation, factory manager salary etc.

Period Cost: The period cost is associated with time period and are not incurred in the production of a product. It includes all other costs except the costs incurred in the production process. Period cost is considered as expense and are recorded in the accounting period in which they are incurred. Selling, distribution and other general costs are included in period costs. Examples are sales commission, advertising, depreciation on office equipment etc.

To state:

The classification of product or periodic cost based on the description of costs.