Question

Operating Expenses
Target Corporation’s footnote from its 2015 annual report table illustrates the primary items classified in each major expense category: cost of sales (COS), or selling, general and administrative (SG&A). For each expense, indicate whether the item would be included in COS or SG&A.

Expense	Category
a.    Advertising expenses	AnswerSG&ACOS
b.    Compensation and benefit costs for headquarters employees	AnswerSG&ACOS
c.    Compensation and benefit costs for store employees	AnswerSG&ACOS
d.    Compensation and benefits costs for distribution center employees	AnswerSG&ACOS
e.    Distribution center costs	AnswerSG&ACOS
f.   Freight expenses associated with moving merchandise from our vendors to our distribution centers and our retail stores	AnswerSG&ACOS
g.    Freight expenses associated with moving merchandise among our distribution and retail stores	AnswerSG&ACOS
h.    Import costs	AnswerSG&ACOS
i.      Inventory shrink and theft	AnswerSG&ACOS
j.      Litigation and defense costs and related insurance recovery	AnswerSG&ACOS
k.    Markdowns on slow moving inventory	AnswerSG&ACOS
l.      Occupancy and operating costs for headquarters facilities	AnswerSG&ACOS
m.   Occupancy and operating costs of retail locations	AnswerSG&ACOS
n.    Outbound shipping and handling expenses associated with sales to our guests	AnswerSG&ACOS
o.    Payment term cash discounts to our vendors	AnswerSG&ACOS
p.    Pre-opening costs of stores and other facilities	AnswerSG&ACOS
q.    U.S. credit cards servicing expenses	AnswerSG&ACOS
r.     Vendor reimbursement of specific, incremental, and identifiable advertising costs

Answer 1

a.    Advertising expenses -SG&A.

b.    Compensation and benefit costs for headquarters employees-SG&A.

c.    Compensation and benefit costs for store employees-SG&A.

d.    Compensation and benefits costs for distribution center employees-SG&A.

e.    Distribution center costs-COS

f.   Freight expenses associated with moving merchandise from our vendors to our distribution centers and our retail stores-COS

g.    Freight expenses associated with moving merchandise among our distribution and retail stores-COS

h.    Import costs-COS

i.      Inventory shrink and theft-COS

j.      Litigation and defense costs and related insurance recovery-SG&A.

k.    Markdowns on slow moving inventory-COS

l.      Occupancy and operating costs for headquarters facilities-SG&A.

m.   Occupancy and operating costs of retail locations-SG&A.

n.    Outbound shipping and handling expenses associated with sales to our guests-COS

o.    Payment term cash discounts to our vendors-COS

p.    Pre-opening costs of stores and other facilities-COS

q.    U.S. credit cards servicing expenses-SG&A

r.     Vendor reimbursement of specific, incremental, and identifiable advertising costs-SG&A