VCE Accounting Practice Test

A period cost is defined as an expense that is incurred during a specific accounting period, and it cannot be directly tied to the production of goods or services. This type of cost is typically associated with the overall operation of the business rather than the manufacturing process.

The correct choice highlights that a period cost is incurred to prepare stock for sale but does not have a logical allocation to individual units. This means that such costs, while essential for preparing the stock for sale, do not directly increase the value of individual units of inventory. For instance, selling, general, and administrative expenses (like advertising and administrative salaries) are considered period costs.

Other options do not accurately represent the concept of period costs. Costs that can be allocated to individual units of stock relate more to product costs, which can be directly linked to the production process. Fixed costs related to long-term assets typically fall under other categories, such as manufacturing overhead, rather than being classified as period costs. Lastly, any cost that is related to revenue generated is too broad, as period costs are specifically those costs not directly associated with production.