In a manufacturing company, how would a 5\% sales commission paid to sales personnel typically be classified?

• A. As a manufacturing overhead cost
• B. As a direct labor cost
• C. As a selling expense
• D. As a cost of goods sold

Answer: (C)

Verified step by step guidance

1. Understand the nature of the cost: A sales commission is a payment made to sales personnel based on the sales they generate. It is directly tied to selling activities rather than production or manufacturing processes.
2. Review the classification of costs: Costs in a manufacturing company are typically categorized into manufacturing overhead, direct labor, cost of goods sold, and selling expenses. Selling expenses are costs incurred to promote and sell products, such as advertising, sales commissions, and shipping costs.
3. Eliminate incorrect classifications: Manufacturing overhead includes indirect costs related to production, such as factory utilities and maintenance. Direct labor refers to wages paid to workers directly involved in production. Cost of goods sold represents the direct costs of producing goods sold during a period. None of these categories apply to sales commissions.
4. Identify the correct classification: Sales commissions are directly related to selling activities and are therefore classified as selling expenses. Selling expenses are part of operating expenses and are reported on the income statement.
5. Conclude the classification: Based on the analysis, a 5% sales commission paid to sales personnel is correctly classified as a selling expense, as it is incurred to support the sales function of the company.