Examples Of A Period Cost

Hey there, accounting adventurer! Let’s talk about something that sounds super boring but is actually kind of fun once you get the hang of it: period costs.

Think of them as the uninvited party guests that show up every month, rain or shine, whether you’re selling a million widgets or none at all. They’re not tied to making your product—they’re tied to running your business.

Ready to meet some quirky examples? Grab a coffee (a period cost itself if you’re at the office!), and let’s dive in.

The Office Rent 🏢

You know that monthly check you write to keep the lights on and the Wi-Fi humming? That’s a classic period cost. It doesn’t matter if you produce 1,000 units or zero—the landlord still wants their money.

It’s like paying for a Netflix subscription you barely watch. You’re just paying for the potential to binge-watch later.

And here’s the twist: if you own the building, the mortgage interest is still a period cost. The building itself isn’t turning into your product—it’s just chilling there, being a roof.

Marketing & Advertising 📢

Every dollar you spend on a Facebook ad, a billboard, or a catchy jingle is a period cost. Why? Because it’s all about persuading people to buy, not making the thing itself.

Think of it as your product’s hype squad. The squad doesn’t sew the clothes or bake the bread—they just wave pom-poms and shout, “Buy this!”

And yes, that includes the free samples you gave out at the mall. You didn’t make the samples into a product—you gave them away to create buzz. Buzz is a period cost. (Buzz also sounds like a bee, but that’s a different article.)

Salaries for Office Staff 🖥️

Your sales team, your accountant, your HR person—they all get paid a salary, and those salaries are period costs. They’re not physically assembling your product on a factory floor.

Period Cost Examples | Top 6 Practical Examples of Period Cost

Unless your HR person is also welding parts together. In that case, part of their salary is a product cost, and your company is very, very confused about job descriptions.

Even the CEO’s giant bonus? Yep, period cost. That bonus won’t make a single extra gadget—it just makes the CEO smile wider.

Utilities (But Only the Office Ones) ⚡

Electricity for the factory? That’s a product cost because it helps run the machines that make stuff. But the electricity for the sales office, where people run the AC and charge their laptops? That’s a period cost.

Think of it as the energy that powers administration, not production. If your office lights are on because Kevin is taking a nap under his desk, that’s still a period cost. (Kevin, wake up.)

And water for the office breakroom? Period cost. You’re not making coffee into inventory—you’re making it into afternoon survival.

Insurance & Legal Fees 📋

General business insurance, like liability or property insurance for the office? Period cost. It’s there to protect the business, not the product.

Legal fees for suing a competitor for stealing your secret recipe? Also a period cost. The lawsuit won’t become a unit you can sell on Amazon (though that would be a hilarious product listing).

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Even the fee your lawyer charges to look at that weird contract from a vendor? Period cost. Your lawyer’s bill is basically a “we’re still in business” tax.

Depreciation on Office Equipment 🖨️

That fancy printer that always jams? It depreciates over time. The depreciation expense is a period cost because the printer is used for administrative tasks, not making products.

Same goes for your office computers, desks, and the fancy coffee machine. They’re all slowly dying so you can be organized and caffeinated.

But the machine that stamps out widgets in the factory? Its depreciation is a product cost—it’s literally turning into the widget’s value. Now you know which machines to hug.

Bad Debts & Write-offs 💸

When a customer doesn’t pay you for a sale you already made, the amount you write off is a period cost. It’s an expense of running a credit-based business.

It’s like inviting someone to a party, they promise to bring chips, and they show up empty-handed. You still have to pay for the music and decorations—the party goes on.

And the cost of that pallet of goods that got damaged in the warehouse (but not during production)? Period cost. The goods are already made—it’s a storage oopsie.

Product costs and period costs - explanation and examples | Accounting

Research & Development (R&D) 🧪

All that money spent on scientists in lab coats mixing weird potions? Period cost. R&D is about dreaming up the next product, not making today’s product.

You might invent a self-folding laundry machine, but until you actually start building them, those lab costs are period expenses. You’re paying for genius, not inventory.

And if the R&D team accidentally creates a skunk-smelling perfume? Still a period cost. (And a strong reason to open a window.)

The Grand Finale: Why Period Costs Are Your Friend

So, after all that, you might be thinking: “Period costs sound like a giant money pit!” And you’re not wrong—they can feel that way. But here’s the secret: they’re essential.

Without period costs, you’d have no office to work from, no ads to attract customers, and no HR person to stop you from hiring your pet iguana as the CFO. (True story: iguanas are terrible with spreadsheets.)

The uplifting part is this: period costs are the cost of running a living, breathing business. They mean your company is alive. You’re paying for a place, for people, for dreams.

So next time you see a period cost on your income statement, don’t groan. Smile. Give it a little wave. It’s your business saying, “Hey, I’m here, I’m open, and I’m ready for whatever happens next.”

And if you ever feel overwhelmed by them, remember: at least you don’t have to list every single paperclip as a product cost. You’re welcome.