Final answer:
The statement that product costs are expensed when they are incurred is false. Product costs are capitalized as inventory and become expenses when the inventory is sold, in line with the matching principle.
Step-by-step explanation:
The statement 'Product costs are expensed when they are incurred' is false. In accounting, product costs are not expensed when they are incurred. Instead, they are capitalized as inventory and do not become expenses until the inventory is sold. These costs then become part of the cost of goods sold (COGS) on the income statement. This process aligns with the matching principle in accounting, where expenses are matched with the revenue they help to generate.
Understanding this concept requires separating costs into fixed and variable costs. Fixed costs, such as rent on a factory or the cost of equipment, do not change with the level of production and are incurred regardless of the company's activity levels. In contrast, variable costs vary with production levels and are included in the cost of the product when calculating COGS. Explicit and implicit costs are also important considerations, with explicit costs being actual cash outflows and implicit costs representing the opportunity cost of utilizing resources the firm already owns, including depreciation.