Above-the-line costs are the costs incurred by a business to make the product it sells or to provide its service. For manufacturing-type businesses, above-the-line costs are any costs deducted to arrive at gross profit, namely the cost of goods sold (COGS). However, for service companies, above-the-line costs are costs that are deducted in arriving at operating profit, which includes COGS but also all selling, general, and administrative (SG&A)costs.
Key Takeaways
Above-the-line costs include all costs above the gross profit, while below-the-line costs include costs below gross profit.
Above-the-line costs are often referred to as the cost of goods sold (COGS), while below-the-line is operating and interest expenses and taxes. This definition mostly relates to manufacturers.
In service industries, above-the-line costs are sometimes referred to as cost of sales (COS).
Above-the-line costs for service providers or utilities generally include all costs above operating profit.
There is a wide gray area between these distinctions. What is considered above the line at one company might be below the line at another company.
Understanding Above-the-Line Costs
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 gross profit.
After gross profit on the income statement is operating expenses, as well as other expenses such as interest and taxes. These are below-the-line costs.
For service businesses, above-the-line costs are any costs incurred before arriving at operating income. Expenses incurred thereafter, such as interest and taxes are considered below the line.
Special Considerations
A different interpretation of above the line can refer to all income or expenses related to normal business operations. That's all activity on the income statement that relates to profits and not transactions that only impact the cash flow statement or balance sheet. In that case, below the line would include only extraordinary or non-recurring income or expenses. Or any transaction 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 cost of creating the company's product, such as worker salaries, equipment, raw materials, and maintenance. Below-the-line costs are the other expenses that keep the company going—the cost of printer paper and fax machines, management and human resources, advertising campaigns, not to mention the salaries of the accounting department itself.
Because above-the-line costs are a direct result of production, they tend to vary more over the short-term compared to below-the-line costs. Key below-the-line costs, such as rent, tend to remain constant regardless of sales and production numbers.
Above-the-line costs tend to vary more over the short term than below-the-line costs.
Real-World Examples
As an example, Nike Inc. reported $44.54 billion in sales for fiscal year 2021 (ended May 31, 2021). Gross profit was $19.96 billion. Therefore, Nike's above-the-line costs for the quarter were $24.58 billion, which the company labels cost of sales on its income statement.
Also consider Expedia Inc., the travel website, which reported $8.60 billion in revenue for 2021 and an operating income of $186 million. 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, which totaled $8.41 billion in 2021.
Above-the-line costs include all costs above the gross profit, while below-the-line costs include costs below gross profit. Above-the-line costs are often referred to as the cost of goods sold (COGS), while below-the-line is operating and interest expenses and taxes.
Definition: The “line” generally refers to gross profit. Above that line on the income statement, typically, are sales and COGS (cost of goods sold) or COS (cost of sales or cost of services). Below the line are operating expenses, interest, and taxes.
Companies subtract the total of their above-the-line costs from their revenue in order to calculate gross profit.Below-the-line costs are an important part of calculating net profit. Companies subtract the total of their below-the-line costs from their gross profit to determine their net profit.
TL;DR: Above the Line (ATL) marketing builds brand awareness through mass channels like TV and radio, while Below the Line (BTL) marketing focuses on personalised, targeted methods like email and social media.
The top line item on the income statement refers to a company's gross sales or total revenue and the bottom line, which is often listed at the end of the income statement, is the net income (also be referred to as net earnings or net profits) generated by the company after deducting the cost of goods sold (including ...
Above-the-line costs are generally considered the cost of creating the company's product, such as worker salaries, equipment, raw materials, and maintenance.
This line signifies a choice in either thoughtful response (Above the Line) or automatic reaction (Below the Line). Operating Above the Line is open, curious and positive. It's about ownership, accountability and responsibility. Operating Below the Line is closed, defensive and negative.
ATL buyers don't care who you are, who your firm is or what it does. BTL buyers may want this information, but ATL buyers aren't interested. They want to know how to improve their operations, reduce their costs and increase their profits.
As you'll remember from our Quick Guide to Conscious Leadership, below the line leadership occurs when a leader is closed, defensive, and committed to being right. On the contrary, above the line leadership occurs when a leader is open, curious, and committed to learning.
Above the line credits are given to those who are considered essential crew, whereas below the line crew members are considered “replaceable.” The major distinction between above the line vs below the line is budgetary.
Operating above the line is open and positive. It's about ownership, accountability and responsibility. Operating below the line is closed and negative. It's about denial, excuses, defensiveness and blame.
Above the Line, or ATL Marketing, refers to generally untargeted, massive campaigns to raise brand awareness and reach more people; below the Line, or BTL Marketing, refers to the much smaller and highly targeted world of ads, aimed at individuals and with easy to track returns on investment and a definitive audience; ...
ATL people tend to approach projects at a concept level, and help Defence evaluate their needs and assess outcomes. Below the Line (BTL) organisations, on the other hand, are tasked with delivery of the contracted capabilities.
Selling, general, and administrative expenses (SG&A) are included in the expenses section of a company's income statement. SG&A expenses are not assigned to a specific product so they aren't included in the cost of goods sold (COGS).
The top line is a pure gross sales number showing how much revenue the company brought in for a given period. As such, it does not subtract expenses, such as the cost of goods sold (COGS), incurred by the company to manufacture its goods. It does not show any reductions for discounts or returns.
Above the line deductions are used in calculating your AGI.Below the line deductions are deducted after your AGI has been calculated to arrive at your taxable income. Both types of deductions help in reducing your taxable income for the year.
The bottom line is a company's net income, or the "bottom" figure on a company's income statement. More specifically, the bottom line is a company's income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, general and administrative costs, and income taxes.
A budget is typically divided into four sections: above the line (creative talent), below the line (direct production costs), post-production (editing, visual effects, etc.), and other (insurance, completion bond, etc.).
Introduction: My name is Melvina Ondricka, I am a helpful, fancy, friendly, innocent, outstanding, courageous, thoughtful person who loves writing and wants to share my knowledge and understanding with you.
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