There are 2 methods of tracing costs of products and service

There are 2 methods of tracing costs of products and services. Name and describe them.

Solution

Two methods of tracing costs of products and services are Product Cost and Period Cost

1) Product Cost; Product cost is that cost which is attributable to product and is a part of cost of manufacturing and therefore can be regarded as inventory value cost. Product cost is based on volume and therefore s also called as variable cost as it changes with the change in the number of units manufactured. Example of product cost is direct labor cost, raw material cost etc.
2) Period Cost; period cost is opposite to product cost and therefore it is not related to cost of product and thus is not included as a part of inventory value. Period cost is based on time period cost and therefore is incurred for a particular period of time therefore it is a fixed cost. selling expenses incurred is an example of period cost as it does not change with the change in units manufactured

Thus in order to obtain true and fair view of cost of goods manufactured and profit and loss of the company it is necessary to differentiate between product and period cost.