STAFF & COMPANY
Meaning of STAFF & COMPANY:
Selling expenses are those expenses which are incurred to
promote sales and service to customers. Thus, selling
overhead includes Salesmen’s Salaries, Commission,
Travelling expenses, Cost of advertisement, Posters, Cost
of price list and catalogue, Debt collection charges, Bad
debts, Free gift, Showrooms expenses, After-sale service,
Legal expenses for recovering debt, etc.
Distribution expenses, on the other hand, are those which
are incurred for warehousing and storage, packing for
goods sent and making the goods available for delivery to
customers. So, in broader sense of the item, distributions
expenses include- Cost of storing, Cost of warehousing,
Cost of packing, Cost of delivery, and Cost of preparation
of challan.
ADVERTISEMENTS:
Thus, from the above discussion, it becomes clear that
there are two types of expenses for two types of functions.
The earlier expenses are incurred for promoting sales
whereas the latter expenses are incurred from receiving
an order to despatch of goods.
Examples of selling and distribution expenses are:
Selling Overhead:
Fixed:
ADVERTISEMENTS:
Showroom expenses, Sales office expenses, Cost of market
research, Cost of samples etc.
Variable:
Commission on Sales, Travelling Salesmen’ Salary,
Carriage Outwards, Discount Allowed, Bad Debts etc.
Distribution Overhead:
ADVERTISEMENTS:
Fixed:
Storage, Godown Rent, Rates and Insurance, Distributors’
Commission, etc.
Variable:
Insurance on goods-in-transit, Packing charges, etc.
Accounting Treatment of Selling and Distribution
Overheads:
ADVERTISEMENTS:
Selling and Distribution expenses are apportioned as per
different functions viz., Transportation, Advertisement and
Sale Promotion, Storage and Warehousing, Direct selling,
Credit and Collection etc. Again, each of them can be sub-
divided into various territories like, South, North, West
etc.
It must be remembered here that all identifiable expenses
(e.g., commission on sales, travelling expenses of salesmen
etc.) can directly be allocated to the respective territories.
But identifiable expenses are apportioned on a suitable
basis. However, we are highlighting here the basis of
apportionment of Selling and Distribution expenses.
It is needless to say that all expenses are to be added to
cost of products sold. We have already shown the
classification of a Selling and Distribution overheads into
fixed and variable types. This classification is absolutely
required for effective control.
ADVERTISEMENTS:
However, fixed overheads are allocated/ apportioned
among the products sold under any one of the
following basis:
(a) Works Cost;
(b) Gross Profit on Sales;
(c) No. of Units Sold;
ADVERTISEMENTS:
(d) Percentage on Selling Price.
(a) Works Cost:
Under this method, percentage of selling overheads to
works cost is to be found out in order to absorb selling and
distribution overheads.
For example, if works cost amounts to Rs. 40,000 and
Selling and Distribution overhead amounts to Rs. 10,000,
absorption of Selling and Distribution cost will be
(b) Gross Profit on Sales:
This method takes a larger share of selling and
distribution overhead than are applied to goods presenting
a wide margin of profit, and vice versa.
(c) No. of Units Sold:
Under this method, in order to ascertain the per unit rate,
total selling and distribution overheads are divided by the
total number of units. This method is particularly
applicable where the company sales a particular or single
kind of product.
For example, say, company X Ltd. produces only one type
of T. V. sets. In a year the company produces 1,000 T. V.
sets and total selling and distribution overheads are Rs. 1,
00,000 then absorption of selling and distribution p.u. will
be Rs. 100 (i.e. Rs. 1, 00,000/1,000)
(d) Percentage of Selling Price:
ADVERTISEMENTS:
Under this method, the total fixed selling and distribution
overheads are absorbed on the basis of percentage on
selling price. The rate is calculated in advance on normal
fixed selling and distribution expenses and on normal
selling price. For example, if fixed selling and distribution
expenses amount to Rs. 25,000 and the expected sales are
Rs. 20,00,000, the percentage will be 12.5% (i.e., Rs.
25,000/ 20,00,000 x 100) on sales.
Control of Selling and Distribution Overhead:
It is very difficult to control the selling and distribution
overhead as most of them are fixed in nature. Only
variable portion may be controlled.
However, the following techniques may be taken into
consideration:
(a) Budgetary control,
(b) Standard costing,
(c) Comparison with past result.
Related Articles:
1. Administration Overhead: Meaning, Accounting
Treatment and Control
2. Treatment of the 10 Items of Selling and Distribution
Overheads
