1 From a Managerial Perspective How does the distinction between product costs and period costs impact decision making in your specific area of concentration Does it alter the way resources are allocated or strategies are formulated Product costs include all costs involved in acquiring or making a ...

1 From a Managerial Perspective The distinction between product costs and period costs significantly ...

1. From a Managerial Perspective : How does the distinction between product costs and period costs impact...

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1. From a Managerial Perspective:
How does the distinction between product costs and period costs impact decision-making in your specific area of concentration? Does it alter the way resources are allocated or strategies are formulated?

Product costs include all costs involved in acquiring or making a product and include direct material, direct labor, and manufacturing overhead. Product costs can be thought of as those costs that necessary in order to deliver the service or goods. Period costs are all of the costs that are not product costs including selling expenses and general and admin costs (sales commissions, advertising, executive salaries, public relations, rental costs). Period costs can be thought of as costs that are necessary to support the existence of the company or organization. By differentiating between the two types of costs, it becomes easier to identify potential areas in production that can become problematic. Problem spots that can be identified are inefficient labor, poor-performing or trouble machinery, outdated procedures, or overspending. Product costs and Product costs are extremely important in healthcare for several reasons. One major issue is supply chain issues and contracts. Previously established contracts with distributors are frequently interrupted when there are supply chain issues due to factories or vendors shutting down. The cost of medical supplies can increase dramatically leading hospitals to adjust and increase pricing accordingly. Some examples of supply chain issues that have created an increase specifically in product costs are COVID, lockdowns in China, and the war in Ukraine. COVID has also weighed heavy on labor costs for the healthcare field. Because of burnout, stress, demand for services, and other various factors, labor costs have increased and hospitals have been forced to contract more expensive labor in order to sustain services. With product costs period costs differentiated, hospitals are able to manage their expenditures in order to continue to stay ahead of problems, sustain providing services and budget.

2.Product Cost vs Period Cost -The Healthcare Administrator's Perspective

Differentiating between product cost and period cost is an integral aspect of any sector or industry, and the healthcare sector is no different from that. The healthcare manager's understanding, distinguishing and efficiently maneuvering these costs will ultimately determine the direction and decisions that specific organizations may embark on. Young, D. W., (2014), postulates that during the next five to ten years, hospitals and health systems will face a variety of financial challenges, including pressures related to the economy, healthcare reform, and increased demand for care. Addressing these challenges will require, at a minimum, an understanding of the costs associated with care delivery. It also will require these organizations to develop an ability to manage, rather than simply measure their costs.

In reference to the health sector, product cost includes those costs that are specific and completely associated with the treatment of patients and the labor required to complete said tasks, for example, medical equipment and supplies, etc.

Period cost on the other hand, according to Walther, L.M., & Skousen, C. J. (2017), defines period cost as cost other than the product cost that is experienced within the period they're incurred. In the healthcare sector, period costs would be incurred from indirect activities associated with the overall management and running of the facility, for example, clerical salaries, leases, or rent, just to name a few.

Healthcare managers, concerning period costs are required to make decisions about the cost-effectiveness of treatments and medical procedures. Administrators must contemplate the financial viability and cost-effectiveness of undertaking medical procedures and treatments against various other factors. Period costs in a healthcare setting will determine how the resources are distributed between departments, ultimately affecting how much a particular service will cost.