Which of the following best describes a 'period cost' in accounting?

• A. A cost that is expensed on the income statement in the period in which it is incurred, such as selling and administrative expenses.
• B. A cost that is directly traceable to the production of specific goods, such as direct materials.
• C. A cost that varies directly with the level of production output.
• D. A cost that remains constant in total regardless of changes in the level of activity.

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'period cost' in accounting. A period cost is a cost that is expensed on the income statement during the period in which it is incurred, rather than being capitalized as part of inventory or production costs.
2. Differentiate period costs from product costs. Product costs are directly traceable to the production of goods (e.g., direct materials, direct labor, and manufacturing overhead), while period costs are not tied to production and include selling, administrative, and general expenses.
3. Analyze the options provided in the problem. Identify which option aligns with the definition of a period cost, focusing on costs expensed in the period incurred rather than those tied to production or activity levels.
4. Eliminate options that describe product costs or costs that vary with production levels. For example, direct materials and costs that vary with production output are product costs, not period costs.
5. Select the option that correctly describes a period cost, ensuring it matches the definition of costs expensed in the period incurred, such as selling and administrative expenses.