Costs Terms, Concepts and Classifications : We have looked at some of the ways in which managers classify costs. How the costs will be used for preparing external reports, predicting cost behavior, assigning costs to cost objects, or decision making will dictate how the costs are classified. For purposes of valuing inventories and determining expenses for the balance sheet and income statement, costs are classified as either product costs or period costs. Product costs are assigned to inventories and are considered assets until the products are sold. At the point of sale, product costs become cost of goods sold on the income statement.