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.

Salaries expense		30,000		Dr.
	Salaries and wages payable		30,000	Cr.

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:

Depreciation expense		7,000		Dr.
	Accumulated depreciation		7,000	Cr.

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:

Advertising expenses		42,000		Dr.
Other selling and administrative expense		8,000		Dr.
	Accounts payable		50,000	Cr.

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.