Product cost and period cost are two categories used in cost accounting to classify expenses incurred by a business.

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Here’s a brief explanation of each:

Product Cost:

Product costs are costs directly associated with the production of goods or services that a company sells.
They include costs such as direct materials, direct labor, and manufacturing overhead.
Product costs are typically incurred in the manufacturing process and are directly tied to the units produced.
These costs are recorded as assets on the balance sheet until the goods are sold, at which point they are recognized as expenses on the income statement.
Examples of product costs include raw materials used in manufacturing, wages paid to factory workers, and depreciation of manufacturing equipment.

Period Cost:

Period costs are expenses that are not directly tied to the production of goods or services but are incurred over a specific period, such as a month or a year.
They include costs such as selling and administrative expenses, research and development expenses, and marketing expenses.
Period costs are expensed in the period in which they are incurred and are not included in the cost of goods sold.
These costs are recorded on the income statement as expenses during the period in which they are incurred.
Examples of period costs include salaries of administrative staff, advertising expenses, rent for office space, and utilities.

In summary, product costs are directly related to the production of goods or services and are capitalized as assets until the goods are sold, while period costs are incurred over a specific period and are expensed in the period in which they are incurred.