Western Governors University (WGU) ACCT2020 D196 Principles of Financial and Managerial Accounting Practice Test

A period cost refers to costs that are not directly tied to the production of goods or services and are instead expensed in the period in which they are incurred. These costs are typically related to the overall operation of the business and include selling, general, and administrative expenses.

When reported in an income statement, period costs are shown as administrative expenses when they relate to activities that support operations but do not directly contribute to the production of goods. For instance, expenses such as salaries for administrative staff, office rent, and utilities for office space are examples of period costs listed as administrative expenses.

In contrast, the other options pertain to costs more directly associated with manufacturing and production. Cost of goods manufactured and cost of goods sold relate to the expenses incurred directly in the production of inventory, while manufacturing overhead refers to all manufacturing costs that are not direct materials or direct labor, and these are also included in the calculation of product costs rather than period costs. Thus, the accurate representation of a period cost in the income statement is indeed as an administrative expense.