What Are Above-the-Line Costs?

Above-the-line costs are the costs regularly incurred by a busine✅ss to make the product it sells or𒈔 to provide its service.

For manufacturing-type businesses, above-the-line costs are any costs deducted to arrive at gross profit﷽, namely the c🅷ost of goods sold (COGS).

However, for service companies, above-the-line costs are co💯sts that are deducted to arrive at operating profit or income, which includes COGS but also all selling, general, and administrative (SG&A) costs.

Understanding Above-the-Line Costs 

Manufacturers

For manufacturers, above-the-line costs are just another way of saying costs before operating expenses. These are likely to include the costs of raw materials, facilities, wages, and other expenses to manufacture the final product and deliver it to consumers. These costs are subtracted from sales to arrive at 澳洲幸运5开奖号码历史查询:gross profit. Gross profit is the so-called line.

On the income statement,🌃 operating expenses as ♋well as other expenses such as interest and taxes appear after gross profit. These are the below-the-line costs. 

Service Businesses

For service✅ businesses, above-the-line costs are any costs incꦕurred before arriving at operating income. Expenses incurred thereafter, such as interest and taxes are considered below the line.

Special Considerations

A different int🍎erpretation of above the line can mean all income 💎or expenses related to normal business operations.

That's all activity on the income statement that relates to profits and not the transactions that only impact the cash flow statement or balance sheet.

In this case, below the line ⭕would include only extraordinary or non-recurring income or expenses. Or any tra🎃nsaction that does not impact the company’s ongoing revenue or profits.

Above-the-Line Costs vs. Below-the-Line Costs

Above-the-line costs are generally considered the costs that are connected to creating the company's product. These costs would cover worker salaries, equipment, raw materials, and maintenance.

Below-the-line costs are the other expenses that ke🥀ep the company going. For examp🅺le, these costs cover printer paper and fax machines, management and human resources, advertising campaigns, and the salaries of the accounting department.

Because above-the-line costs have a direct connectio🍸n to production and production needs can change, these costs tend to vary more over the short-term com𝓰pared to below-the-line costs. Key below-the-line costs, such as rent, tend to remain constant regardless of sales and production numbers.

Examples

Nike Inc. reported $51.36 billion in revenue for the fiscal year ended May 31, 2024. Gross profit was $22.88 billion. Therefore, Nike's above-the-line costs for the quarter were $28.48 billion, which the company labels cost of sales on its income statement.

Also consider Expedia Inc., the travel website. It reported $12.84 billion in revenue for the fiscal year ended Dec. 31, 2023. Its operating income was $1.03 billion. The company is not involved in the production of goods so the company does not use gross profit as a metric in its income statement.

All expenses before operating income are considered above-the-line costs for Expedia, including the cost of revenue and selling and marketing expenses. These costs and expenses totaled $11.81 billion in 2023.

The Bottom Line

Above-the-line costs are the costs and expenses that directly relate to the production of a product or the provision of a s🀅ervice.

For each type of company—manufacturer or service provider—they will involve different expenses. The term "line" refers to the line in the income statement that is designated by gross profit (for manufacturers) or operating income (for service providers).