Best Buy 2016 Annual Report Download - page 76

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Cost of Goods Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Goods Sold
• Total cost of products sold including:
— Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers;
— Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs; and
— Cash discounts on payments to merchandise vendors;
• Cost of services provided including:
— Payroll and benefits costs for services employees; and
— Cost of replacement parts and related freight expenses;
• Physical inventory losses;
• Markdowns;
• Customer shipping and handling expenses;
• Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs and
depreciation; and
• Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores.
SG&A
• Payroll and benefit costs for retail and corporate employees;
• Occupancy and maintenance costs of retail, services and corporate facilities;
• Depreciation and amortization related to retail, services and corporate assets;
• Advertising costs;
• Vendor allowances that are a reimbursement of specific, incremental and identifiable costs to promote a vendor's
products;
• Tender costs, including bank charges and costs associated with credit and debit card interchange fees;
• Charitable contributions;
• Outside and outsourced service fees;
• Long-lived asset impairment charges; and
• Other administrative costs, such as supplies, travel and lodging.
Vendor Allowances
We receive allowances from certain vendors through a variety of programs and arrangements intended to offset our costs of
promoting and selling merchandise inventories. Vendor allowances are primarily in the form of receipt-based funds or sell-
through credits. Receipt-based funds are generally determined at an agreed percentage of purchases and are initially deferred
and recorded as a reduction of merchandise inventories. The deferred amounts are then included as a reduction of cost of goods
sold when the related product is sold. Sell-through credits are generally determined at an agreed percentage of sales and are
recognized when the related product is sold. Vendor allowances provided as a reimbursement of specific, incremental and
identifiable costs, such as specialized store labor or training costs, are included in SG&A as an expense reduction when the cost
is incurred.
Advertising Costs
Advertising costs, which are included in SG&A, are expensed the first time the advertisement runs. Advertising costs consist
primarily of digital, print and television advertisements, as well as promotional events. Advertising expenses were $742
million, $711 million and $757 million in fiscal 2016, 2015 and 2014, respectively.
Stock-Based Compensation
We apply the fair value recognition provisions of accounting guidance as they relate to our stock-based compensation, which
require us to recognize expense for the fair value of our stock-based compensation awards. We recognize compensation