Non Manufacturing Cost

Non Manufacturing Cost is defined as the cost that is not incurred in the manufacturing of a product. In other words it means that non manufacturing costs are not allocated to products via overhead rates. Non Manufacturing Cost is also referred to as the non manufacturing overhead costs or administrative overhead. These costs include the Selling, General& Administrative (SG&A) expenses and Interest Expense. Under generally accepted accounting principles (GAAP), these costs are not product costs as they are not assigned to inventory or to the cost of goods sold.

The non manufacturing costs are reported on a company’s income statement as expenses in the accounting period in which they are incurred. Generally these expenses are classified into two categories- marketing and selling costs and administrative expenses. The marketing and selling costs include costs which are essential to secure the customers orders and get the finished product into the hands of the customers. Examples of these costs are advertising costs, shipping costs, sales commission and sales salary.

The administrative expenses include all executive, organizational, and clerical costs associated with general management of an organization. It is not associated manufacturing, marketing, or selling. The examples of administrative expenses are executive compensation, general accounting, secretarial, public relations and general administration of the organization as a whole.

The non manufacturing expenses are not assigned to products for purposes of reporting inventory and the cost of goods sold on a company’s financial statements, but they should be considered as part of the total cost of providing a specific product to a specific customer. If a product has to be profitable then its selling price should be greater than the sum of the product cost (direct material, direct labor, and manufacturing overhead) plus the non manufacturing costs and expenses.

Questions:

• What is non manufacturing cost?
• What are the various categories of non manufacturing expenses? Explain with examples.