Treatment of non-manufacturing costs

By: Rashid Javed | Updated on: October 24th, 2021

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:

  1. Selling and administrative salary: $60,000
  2. Depreciation on office expenses furniture: $14,000
  3. Advertising expenses: $84,000
  4. Other selling and administrative expenses: $16,000

Required: make journal entries from the information provided above.

 Journal entries:

treatment-of-non-manufacturing-costs-img1

Note: In entry 2, the depreciation on office furniture have 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.

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One Comment on Treatment of non-manufacturing costs
  1. Samuel Marai

    Appreciate..It’s very resourcesful.

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