Inventoriable costs and period costs flow through the income statement of a service company in a similar way to those of a manufacturing company.

Question

Quizplus · Accepted Answer

Inventoriable costs are costs related to the production of goods, such as direct materials, direct labor, and manufacturing overhead. These costs are capitalized as inventory on the balance sheet and only become expenses when the inventory is sold. Since a service company does not produce goods, it does not have inventory and therefore does not have inventoriable costs. Instead, a service company incurs period costs such as salaries, rent, and advertising that immediately flow through the income statement as expenses. Manufacturing companies, on the other hand, do have inventoriable costs that are eventually expensed as cost of goods sold when the inventory is sold. Therefore, the way that these costs flow through the income statement is different between service and manufacturing companies.

Inventoriable Costs and Period Costs Flow Through the Income Statement