Period costs are expenses that are not directly related to the production of goods or services. Instead, these costs are incurred over a specific period of time, such as a month, quarter, or year. Examples of period costs include rent, utilities, marketing expenses, and administrative salaries.
Period costs are typically expensed in the period in which they are incurred, rather than being capitalized and allocated to the cost of goods sold. This means that period costs do not directly impact the cost of producing a product or providing a service.
Period costs are deducted from revenue to calculate net income on a company's income statement. They are considered operating expenses that are necessary to keep the business running, even if production is halted.
Period costs are also known as selling, general, and administrative expenses (SG&A) and are often considered fixed costs because they do not fluctuate with production levels. However, some period costs, such as advertising expenses, may vary depending on the volume of sales or production activities.
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