Product costs and period costs are incurred by a company, but they are distinctly different. Product costs refer to expenses directly involved in the manufacturing process of the end product (“Product Costs”). Such expenses include direct material that goes into production, direct labor, including employee wages and insurance, and manufacturing overhead, which are factory-related expenditures (“Product Costs”). On the other hand, period costs are not connected to manufacturing a product but cover other processes like marketing, sales, and audit (“Product Costs”). Product and period costs need to be sorted to ensure that a company’s financial statements are accurate. Product costs are documented within the inventory asset and are not shown on the income statement until the end product is sold (“Product Costs”). However, as period costs are not part of the manufacturing process, they are documented differently (“Product Costs”). Although product costs and period costs are accounted for by a company, they are separate expenses with specific goals.
Following that, like many other businesses, McDonald’s has period and product costs. Product costs related to McDonald’s French fries can be determined based on a video featuring Grant Imahara, in which he explores how the fries are made (“Here’s How”). Product costs include direct material, and the main material for French fries are potatoes and supplements like oil, sugar, and sodium acid (“Here’s How,” 00:03:14-00:03:18, 00:01:35-00:02:08). Direct labor expenses are not clearly mentioned in the video, but some employees who receive wages appear, such as a production planner Koko Hener (“Here’s How,” 00:00:57-00:01:00). Manufacturing overhead costs include the expenditures on operating the machinery like the freezer tunnel, fryer, and “potato gun” (“Here’s How,” 00:01:06-00:03:13). Since Grant Imahara investigates the production of McDonald’s French fries, the video shows only product costs (“Here’s How”). However, as McDonald’s is a company with multiple locations around the globe, one can assume that its period costs include but are not limited to sales and marketing. Overall, McDonald’s expenses on the production and sale of French fries are important aspects of its business.
“Here’s How McDonald’s Makes Its French Fries.” Time, uploaded by Laura Stampler, 2015, Web.
“Product Costs.” CFI, Web.