Quiz 2: Basic Cost Management Concepts
Distinction between product costs and period costs:
Product costs are also called as inventoriable costs, because the various costs incurred in the 'Product Cost' such as the direct material, direct labor, other direct expenses and the manufacturing overheads are included in the 'Product Cost' and are stored as 'Stock of Goods' in the inventory until they are sold and converted into cash.
The services are recognized as an industry on par with manufacturing industries, and all the service firms are considered as a part of service industry. The output of the service firms is referred to as 'Service Product' and hence, the same cost classification used in manufacturing companies can be applied even in service firms. However, there are some important differences between the manufacturing firm and a service industry firm. They are shown in the following table. The above differences make it difficult to classify the costs into 'product costs'.