Basic Cost Classification

[Tokyo Red]

Hi folks - this is really annoying me. My line manager (also an accountant) and I are disagreeing as to the cost classification on one of our deals, and he's being annoyingly patronising about it. I'd like a consensus viewpoint as to who is correct...

For a specific contract we need to pay an agent (3rd party, not an employee) a commission fee for assisting us with the RFP. The charge is a % of all recurring fees under the contract with the end client.

This is the only deal with this agent, and all fees are solely associated with this deal.

Is this a cost of sale or an operating expense?

On the one hand the cost is solely attributable to one client under one contract, on the other it is not a direct cost of the product being sold, this is an agent's fee not a reseller's fee.

Answers on a postcard please.

 

[bklynboy]

By cost of sales do you mean of costs of goods (i.e. costs of production)? I assume so as you are distinguishing this to expenses.

Commission paid is a selling expense and not part of the cost of goods produced. If this is not what you are asking let me know.

 

[karikamiya]

It should be an expense under "Commissions".

On the one hand the cost is solely attributable to one client under one contract

Looks like the transaction will get mighty lonely then. Still an Expense.