Whether a company produces a product or service, managers need to know the company's cost for each product or service that it offers. For the purpose of determining the cost of each unit, costs are classified as either product costs or period costs Period costs are all costs connected with the production process and include direct material costs, direct labor costs, and overhead costs. costs include all costs incurred by a company that are not directly related to production. costs are further divided into selling expenses and administrative expenses. See Clearly Co. produces eyeglasses and sunglasses. A partial list of costs follows. Identify each product cost as either direct materials, direct labor, or overhead. Identify the period costs as a selling expense or an administrative expense. Glass for eyeglasses Maintenance supplies for the factory Labor cost for opticians Labor cost for factory maintenance workers Depreciation on factory equipment Advertising costs Commissions paid to the sales force Depreciation on office equipment in the executive offices Utilities for the building that houses the administrative offices The cost of goods manufactured is the total of the product costs incurred for the units completed during the current period. It is not an expense, like the cost of goods sold. The cost of goods manufactured is stored in which is account. As units are sold, the cost of the units is then recorded as Cost of Goods Sold. The flow of the product costs is demonstrated in the linked example and summary below. A cost of goods manufactured schedule is an internal schedule that is used to calculate the cost of producing the completed units during the period. It uses models very similar to the cost of goods sold model and summarizes the flows of the product costs. A separate cost of goods sold schedule (which presents the cost of goods sold model) for the period may also be prepared or incorporated directly Into the income statement. Example: This example Illustrates how costs flow through the inventory accounts