Product Costs
Expenses directly associated with manufacturing goods, including materials, labor, and overhead, which are inventoried until the products are sold.
Product Costs
Expenses directly associated with manufacturing or acquiring products for sale, including direct materials, direct labor, and manufacturing overhead, which are inventoried until the products are sold.
For example, in a furniture factory, product costs would include $200 for wood and fabric to make a chair (direct materials), $100 for the workers who build it (direct labor), and $150 for factory rent, utilities, supervisor salaries, and equipment depreciation allocated to each unit (manufacturing overhead).
Product costs initially appear as assets (inventory) on the balance sheet rather than as expenses on the income statement. They only become expenses (cost of goods sold) when products are sold, following the matching principle by linking costs with the revenue they generate. This treatment differs from period costs, which are expensed immediately regardless of when related products are sold.