Research and development costs

Research and development costs are incurred as part of the process of developing new products and processes. Since these expenditures may not result in viable outcomes, they are typically charged to expense as incurred. Examples of these costs are researcher salaries, testing fees, materials costs, and department utility expenses.

From a financial analysis perspective, a high percentage of research and development costs to sales is considered a good indicator of the ability of a business to be competitive in the future, since it can result in a steady stream of new products. However, the expenditure can be wasted if not appropriately directed.