Elements of Non Manufacturing costs

Non-Manufacturing costs are costs incurred by all activities that support the production of goods and services. They are administration costs, selling costs and distribution costs. These are explained as follows:

  1. Administrative costs: Is the sum of costs associated with the overall management of the enterprise which cannot be readily identified with one of the major functional areas e.g. salary of the factory manager would be seen as a production cost but the salary of the personnel officer will be viewed as administrative cost since the personnel function does work for all other functions of the enterprise.

  2. Selling Costs: Is the sum of costs associated with the securing of orders from customers? Included in this area will be items such as the salaries paid to the salesmen and expenditure on advertising.

  3. Distribution costs: Is the sum of costs associated with warehousing the products and their delivery to customer? The cost of wooden pallets on which products are stacked for delivery to customers and the cost of delivery whether using the company’s own vehicles or outside haulage firm are examples of distribution costs.

  4. Finance Costs: These are costs incurred to secure funds to finance the organization’s activities. These include interests on loans and overdrafts, dividends to shareholders, interests on debentures etc

  5. Research and development Costs: These are costs that are incurred to invent new products or to modify the existing ones, as well as costs incurred to acquire more information on such products.