Period cost
Period cost is a non-manufacturing expense — such as selling commissions, advertising, or administrative salaries — charged directly to the income statement in the period it arises. It never attaches to inventory.
Also known asperiod costs
See it move
The infographic is a two-column comparison contrasting product costs and period costs. Product costs — covering direct materials, direct labour, and manufacturing overhead — flow into inventory first and are expensed as cost of goods sold only when a unit is sold. Period costs such as selling, administrative, and advertising expenses bypass inventory and are charged directly to the income statement in the period incurred, regardless of sales volume; the example given is €7,000 in advertising and management salaries that hits the income statement whether zero or all 500 jackets are sold.
Check yourself
Which of the following is correctly classified as a period cost under absorption costing?
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB allows a relatively narrow range of inventoriable costs — essentially direct production costs plus variable overheads at a minimum — so fixed manufacturing overheads and all selling, distribution, and administrative costs are routinely expensed as period costs in the period incurred. Smaller entities applying the statutory minimum-cost floor therefore push a larger share of factory costs to the income statement immediately.
IFRS
IAS 2 restricts period costs strictly to those that cannot be attributed to bringing inventory to its present location and condition — chiefly abnormal waste, storage costs unrelated to production, and general administration. Unlike the HGB minimum approach, IAS 2 requires that all production-related overheads, both fixed and variable, be allocated to inventory at normal capacity, so a narrower set of manufacturing costs qualifies as an immediate period expense under IFRS.