Final answer:
Product costs are converted from cost to expense when units are sold, as this is when they are recorded as cost of goods sold on the income statement, reflecting the costs of producing the sold goods.
Step-by-step explanation:
Product costs are converted from cost to expense when units are sold. This is because while products are in inventory, their associated costs are considered assets. However, once the inventory is sold, these costs are then recorded on the income statement as an expense, specifically as cost of goods sold (COGS). This reflects the actual costs associated with producing the goods that have generated revenue for the firm.
In business accounting, fixed costs such as rent, machinery, or equipment, are expenditures that do not change with the level of production. These costs become expenses during the accounting period they relate to and are part of the overall expenses reported in financial statements. However, it is the act of selling that triggers the conversion of product costs from costs to expenses, as variable costs associated with the production are directly tied to the production and sale of the goods.