Competitors often want to know the cost of a competing product. For a price, a c

Question

Competitors often want to know the cost of a competing product. For a price, a company called iSuppli will disassemble sophisticated electronics and tell you what it would cost to replicate the product. The difference between the cost of the parts and the cost of the labor to assemble the parts isn’t all profit. There are nonproduction costs such as research, design, marketing, patent fees, and selling costs.
What type of costs are research, design, marketing, patent fees, and selling costs, and how are they treated for accounting purposes?

Explanation / Answer

Research and Development- R&D cost is an Operating cost and can be deducted for business tax purpose. It is a fixed cost.

Design- It refers to the product design. Management accounting provides Activity based costing (ABC) for the design of the product.

Marketing- Marketing cost is a fixed cost as it does not change over a period of time.

Patent fee- Patent is an intangible asset and patent fee is added into the initial cost of patent that is later amortized every year.

Selling Cost- This is the cost incurred by sales department. It includes; Salesperson's salary, wages, advertising etc. This is an operating expense and shown in the Income statement. It is also called "Selling and Administrative expenses".

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