Recording Non-manufacturing Costs in a Job Order Costing System:

In addition to manufacturing costs, companies also incur marketing and selling costs. These costs should be treated as period expenses and charged directly to the income statement and therefore should not go into the the manufacturing overhead account.

Example:

To illustrate the correct treatment of non-manufacturing costs, assume that a company incurred $30,000 in selling and administrative salary costs during a months, the following entry records these salaries.

Depreciation on factory equipment is debited to manufacturing overhead account but depreciation on office equipment is considered a period expense and is not included in manufacturing overhead. Assume that depreciation of office equipment during the month was $7,000. The entry is as follows:

Finally assume that advertising was $42,000 and that other selling and administrative expenses during the month was $8,000. The following journal entry records these items:

Since the amounts in entries above all go directly into expense accounts, they will have no effect on the costing of the company’s production for the month. The same will be true of any other selling and administrative expenses incurred during the month including sales commission, depreciation on sales equipment, rent on office facilities, insurance on office facilities, and related costs.

You may also be interested in other useful articles from “job order costing system” chapter:

1. Measuring Direct Materials Cost in Job Order Costing System
2. Measuring Direct Labor Cost in Job Order Costing System
3. Application of Manufacturing Overhead
4. Job Order Costing System – The Flow of Costs
5. Multiple Predetermined Overhead Rates
6. Under-applied overhead and over-applied overhead calculation
7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
8. Predetermined Overhead Rate and Capacity
9. Recording Non-manufacturing Costs
10. Recording Cost of Goods Manufactured and Sold
11. Job Order Costing in Services Companies
12. Use of Information Technology in Job Order Costing
13. Advantages and Disadvantages of Job Order Costing System
14. Job Order Costing Discussion Questions and Answers
15. Job Order Costing Exercises
16. Case Studies

Other Related Accounting Articles:

• Job Order Costing – The Flow of Cost
• Job Order Costing System Exercises and Problems
• Recording Cost of Goods Manufactured and Sold in Job Order Costing
• Job Order Costing in Service Companies
• Job Order Costing Questions and Answers
• Multiple Predetermined Overhead Rates
• Over-applied and Underapplied Overhead
• Disposition of Underapplied or Overapplied Overhead Balances
• Job Order Costing System
• Application of Manufacturing Overhead Cost in Job Order Costing