Income can be measured properly only when every attempt is made to segregate and allocate overhead costs to units of output so that costs of products may be matched or associated with the revenues derived from the sale of merchandise. To accomplish this task the generally accepted fixed-variable cost breakdown should be discarded for income measurement purposes. The straight-line amortization of costs associated with fixed assets should also be discarded. In place of straight-line amortization, a unit-of-output amortization plan or an approximation thereto should be used. The approximation would be the cycle overhead concept. The fixed cost portion of semi-variable cost inputs should be reassociated with their variable counterparts and then allocated to the output for which they were absolutely necessary elements of production. Finally, unit costs should be allowed to fluctuate with volume within the range for which semi-variable cost inputs are absolutely necessary costs of production.

The period cost concept divides cost data into two broad categories, firstly, "Period" costs which are those costs related to time, i.e., those costs which expire with the passage of time rather than with the volume of business activity, and secondly, "product" costs which include those costs which relate to the product being produced, i.e., those costs which are directly affected by the volume of business activity. Under the period cost concept as it relates to income measurement only variable manufacturing costs are considered inventoriable while fixed manufacturing costs as well as selling and administrative costs are period costs. In general the accounting profession does not accept for income measurement purposes the treatment of fixed manufacturing costs as period costs. Conversely the accounting profession has accepted for many years a period cost approach to the handling of selling and administrative costs. In this article the authors will show that the period cost concept is not appropriate for purposes of income measurement. It is the intention of this article to show that categorizations of cost such as period costs vs. product costs are not relevant to the process of income measurement.