Nonmanufacturing overhead costs definition
/What are Nonmanufacturing Overhead Costs?
Nonmanufacturing overhead costs are expenditures not associated with product costs. Since they are not associated with products, these costs are not allocated to products in the determination of the cost of ending inventory or the cost of goods sold. Nonmanufacturing overhead costs include selling, general and administrative costs, as well as financing costs. Nonmanufacturing overhead costs support critical parts of a business, such as its sales and marketing activities, and so should not be considered discretionary costs. Instead, product price points should be set high enough to ensure that a business generates a profit after the full amount of these costs have been incurred.
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Examples of Nonmanufacturing Overhead Costs
Examples of nonmanufacturing overhead costs are the compensation of sales and marketing personnel, rent and utility costs on administrative facilities, interest on loans and lines of credit, marketing costs, liability insurance, and office supplies.
Presentation of Nonmanufacturing Overhead Costs
These costs are reported on a company’s income statement below the cost of goods sold, and are usually charged to expense as incurred. Since nonmanufacturing overhead costs are treated as period costs, they are not allocated to goods produced, as would be the case with factory overhead costs. Since they are not allocated to goods produced, these costs never appear in the cost of inventory on a firm’s balance sheet.