Product costs are those costs that go into the actual production of our product, while period costs are incurred as part of the selling and administrative process. Even though the selling and administrative components do not directly make a profit, they are important parts of the business process. These costs need to be allocated to the manufacturing departments to insure that when we price our product, we include all the costs of doing business.
Various methods were discussed to help with the allocation of all expenses, from the raw materials that go into our product, to the person preparing the payroll checks and ordering the raw materials. Different companies will require different types of costing processes to effectively manage their business in a profitable way.