Selling and administrative expenses, also known as selling, general, and administrative expenses (SG&A), refer to the costs incurred by a company in its day-to-day operations that are not directly associated with production or manufacturing. These expenses are typically incurred in selling, marketing, and administrative activities that support the overall functioning of the business. Selling and administrative expenses are categorized as indirect costs in managerial accounting.
Let’s explore the components of selling and administrative expenses:
- Selling Expenses: Selling expenses include the costs associated with promoting, advertising, and selling a company’s products or services. These expenses are incurred to generate sales revenue and can vary depending on the company’s marketing and sales strategies. Examples of selling expenses include sales commissions, advertising costs, marketing campaigns, sales salaries, sales promotions, trade show expenses, and sales-related travel expenses.
- Administrative Expenses: Administrative expenses comprise the costs associated with the general administration and management of a business. These expenses are incurred to support the overall operations, supervision, and coordination of the company. Examples of administrative expenses include salaries of management and administrative staff, rent for office space, utilities, insurance premiums, legal and accounting fees, office supplies, and other general administrative costs.
It’s important to note that selling and administrative expenses are not directly related to the production of goods or services. Instead, they are necessary for sales generation, customer support, and the overall management of the company.
Selling and administrative expenses are recorded on the income statement and are typically treated as period expenses. They are separate from direct costs (such as direct materials and direct labor) and are usually incurred on an ongoing basis regardless of production levels. By analyzing selling and administrative expenses, companies can evaluate the efficiency of their sales and marketing efforts, monitor administrative costs, and assess the overall profitability of the business.