Selling and administrative costs

Definition

Selling and administrative costs are expenses that are not directly tied to the production process. These include marketing, sales, and general administrative expenses such as office supplies, salaries of non-production staff, and utilities for non-manufacturing facilities.

5 Must Know Facts For Your Next Test

1. Selling and administrative costs are considered period costs because they are expensed in the period incurred.
2. These costs do not get included in the cost of goods manufactured or in inventory valuation.
3. Examples include advertising expenses, executive salaries, rent for office space, and legal fees.
4. In job order costing, selling and administrative costs are treated separately from direct materials, direct labor, and manufacturing overhead.
5. They impact the overall profitability but not the cost per unit of a specific job or product.

Review Questions

• Why are selling and administrative costs classified as period costs?
• Give three examples of selling and administrative costs.
• How do selling and administrative costs differ from manufacturing overhead in job order costing?

Related terms

Direct Materials:

Costs of raw materials that can be directly attributed to the production process.

Manufacturing Overhead:

Indirect factory-related costs that support production but cannot be directly traced to a specific job.

Job Order Costing:

A system that assigns manufacturing costs to an individual product or batches of products based on distinct jobs or orders.