Give an example where product and period costs are the same and a separate example where they are different.
Sure!
Example 1: Product and Period Costs are the Same
Let's consider a small bakery that produces and sells cupcakes. In this case, the cost of ingredients (such as flour, sugar, eggs) directly used in making the cupcakes would be considered a product cost. Additionally, the wages of the bakery staff directly involved in producing the cupcakes would also be considered a product cost. Both of these costs are directly tied to the production process and are considered a part of the cost of the cupcake product.
Example 2: Product and Period Costs are Different
Now let's look at a separate example where product and period costs are different. Let's consider a software development company that creates and sells computer programs. In this case, the cost of software developers' salaries, the cost of computer hardware and software licenses, and other expenses directly associated with creating the software would be considered product costs as they are directly incurred to develop the product.
However, the company also has costs related to running the business, such as administrative salaries, marketing expenses, and office rent. These costs are not directly associated with the production of the software but are necessary to keep the business running. Hence, these costs are classified as period costs, as they are incurred over a specific time period and are not directly tied to the production process.
In summary, in Example 1 (bakery), the product and period costs are the same as both the ingredients and wages of staff directly contribute to the production of cupcakes. In Example 2 (software development company), the product costs are associated with the creation of software, whereas the period costs are related to the general operation of the business.