What is a period cost?

A period cost is a type of cost that is not directly tied to the production of goods or services. Instead, period costs are incurred in a specific time period and are usually expensed in that period rather than being allocated to the cost of goods sold.

Examples of period costs include rent, utilities, salaries for administrative staff, marketing expenses, and insurance. These costs are necessary for a business to operate, but they do not directly contribute to the production process.

Period costs are typically considered operating expenses and are deducted from revenue on the income statement to calculate a company's net income. Since period costs are not directly related to production, they are often considered fixed costs, meaning they do not fluctuate based on the level of production or sales.

Overall, period costs are important to consider when analyzing the profitability and financial performance of a business, as they represent the ongoing expenses required to maintain operations outside of the production process.