Non-manufacturing expenses have no effect on the production cost of the company because they are treated as period costs.
Non-manufacturing costs are not included in manufacturing overhead account but are charged directly to income statement. Examples of non-manufacturing expenses are sales commission, advertising expenses, rent of office building, and depreciation on the equipment used in office etc.
Journal entries to record non-manufacturing costs:
To understand how entries for non-manufacturing costs are made, consider the following example:
GX company uses job order costing system and has incurred the following non-manufacturing expenses for the most recent period:
- Selling and administrative salary: $60,000
- Depreciation on office expenses furniture: $14,000
- Advertising expenses: $84,000
- Other selling and administrative expenses: $16,000
Required: make journal entries from the information provided above.
Note: In entry 2, the depreciation on office furniture has been debited to depreciation expense because depreciation on office furniture or equipment is treated as period cost. If it were a depreciation on factory equipment, it would have been debited to manufacturing overhead because depreciation on factory equipment is treated as manufacturing or product cost.