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October 8, 2021

What is SG&A?


The same is true of travel, such as salespeople visiting clients or attending trade shows as well as staff visiting suppliers or going on buying trips. It’s useful to know which categories within this broad heading of business expenses your various outgoings fall.

type of operating

With more accurate cost and profit measures, management can know which product lines and markets most deserve corporate resources and attention. The controller requested managers in the different departments to calculate advertising, warehousing, selling, and other nonmanufacturing costs for the three market segments. Warehousing costs, for example, could be parceled out according to the space used in serving the different market groups. The hours spent by the sales force in the field were also logged and allocated to the different market segments. The manufacturing services specialist also suggested that corporate quality control costs be divided according to the number of QC employees assigned to each division. Other corporate services that couldn’t easily be charged to each product line could be allocated by simply dividing those costs by the number of product lines.

What Is an Income Statement and How to Make One

The diffeSales, General, And Administrative Vs Cost Of Goods Sold ial between gross profit and EBIT, assuming there are no other operating expenses, represents the incurred SG&A expense in the given period. Freight, packing, and warehousing costs, for example, were much lower for the OEM market than for the other two markets. The reason, the controller learned, was that OEMs typically order in bulk. Packing and freight costs for the replacement market were much higher because orders placed by hardware stores and other retailers are usually smaller and more varied. The cost of selling to the OEM market was also lower because the company’s salespeople didn’t have to call on OEM accounts as frequently as on accounts in the other two markets. What top management learned was that the OEM market was more profitable than had been assumed.

When it comes to the difference between SG&A and operating expenses, often there’s none, especially in the way many companies report them on the income statement. What’s different is the degree of granularity when reporting operating expenses. SG&A expenses are sort of the opposite for the cost of goods sold in the sense that SG&A aren’t attributed to any product or service unlike COGS. SG&A expenses are the part of operating expenses, though they sometimes are used interchangeably.

What is Not Included in SG&A?

What can be discussed though, is what KPIs are necessary to follow in this or that particular case and which modern Business Intelligence software can help you do it seamlessly and consistently. Depending on the COGS classification used, ending inventory costs will obviously differ.

  • SG&A ratio is compared to the average benchmark in the industry, because this indicator varies a lot.
  • On occasion, it may also include depreciation expense, depending on what it’s related to.
  • General and administrative expenses are costs that are not directly related to the sales of a company’s products or services, but are instead related to the company’s overall operations.
  • These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”).
  • Warehousing costs could be allocated to each product line by counting the number of bays used to store each product.
Category: Bookkeeping

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