What is Selling, General and Administrative Expenses (SG&A)?
The company’s income statement includes all general and administrative expenses (G&A) as well as direct and indirect sales expenses of the business in the category of selling, general and administrative expenses (SG&A).
In fact, this line item includes almost all business costs that are not directly attributable to making the product or performing the service. SG&A includes the cost of managing the company and delivering its products or services.
- Selling, general and administrative expenses (SG&A) are included in the expense section of a company’s income statement.
- SG&A expenses are not assigned to a specific product, and are therefore not included in cost of goods sold (COGS).
- SG&A expenses are incurred in day-to-day business operations.
- Managers typically target SG&A to cut costs because they do not directly affect the product or service.
Selling, General and Administrative Expenses (SG&A)
Understanding Selling, General and Administrative Expenses (SG&A)
SG&A covers almost everything that is not included in the cost of goods sold (COGS) category. Some of the major SG&A expenses include:
- Salary paid to employees of Accounts, Information Technology, Marketing and Human Resource departments
- Commission, advertising and promotional material costs
- Rent, utilities, office equipment, and supplies that are not used for construction
expenses that are No SG&A includes:
- construction costs such as materials and labor
- interest payment
- research and development cost
How to List SG&A and COGS
On the income statement, COGS is deducted from the net revenue figure to determine the gross margin.
SG&A and any other expenses are listed below gross margin.
When these expenses are subtracted from the gross margin, the result is net income.
Interest expense is one of the notable expenses not included in SG&A. It has its own line on the income statement. Research and development cost is also excluded from SG&A.
SG&A expenses as a percentage of revenue are generally higher for health care and telecommunications businesses but relatively lower for real estate and energy.
direct and indirect selling costs
Selling expenses can be divided into direct and indirect costs.
Direct selling expenses are incurred only when the product is sold. These include shipping supplies, delivery fees and sales commissions.
Indirect selling expenses are incurred during the manufacturing process and after the product is finished. Examples are advertising and marketing, telephone bills, travel costs and sales personnel salaries.
SG&A . of G&A
G&A expenses are the company’s overhead. They are incurred in the day-to-day operations of a business and may not be directly tied to a specific function or department within the company.
They are fixed costs that include rent or mortgage on buildings, utilities and insurance. G&A costs also include the wages of personnel in certain departments that are not directly related to sales or production.
SG&A . role of
SG&A plays an important role in calculating the profitability of the company and its break-even point. This is the point at which a company’s revenue is generated and its expenses are equal.
This is one of the easiest places to manage when trying to boost profitability. Deductions in operating expenses, such as salaries of non-sales personnel, can usually be made without disrupting manufacturing or sales processes.
SG&A is one of the first places managers look when reducing redundancies after a merger or acquisition. This makes it an easy target for a management team that wants to boost profits quickly. For example, the day DuPont and Dow Chemical announced their merger in 2015, the companies announced 5,400 job cuts in an effort to save $750 million in expenses.
What is and is not included in Selling, General and Administrative Expenses (SG&A)?
SG&A covers almost every business expense that is not included in the cost of goods sold (COGS).
- The accountants, marketing professionals, and software engineers who keep the business running, and all office space, supplies, and utilities they use, are SG&A expenses.
- The raw material that goes into the product and the wages of the people who make it are COGS expenses.
What are selling expenses?
Selling expenses are either direct or indirect costs.
Direct selling expenses are incurred only when the product is sold and include shipping supplies, delivery charges and sales commissions.
Indirect selling expenses can occur during the manufacturing process and after the product is finished. These include advertising and marketing, telephone bills, travel costs and sales personnel salaries.
What are General and Administrative Expenses (G&A)?
The G&A of SG&A can be called overhead expenses. A business has many expenses that are not directly related to making or selling a product. Office rent, utilities and insurance are all costs of doing business. Departments such as human resources and information technology support the business but do not take a direct role in product creation.
How can SG&A be useful to a business manager?
SG&A is critical to the success of a business and is cost-cutting sensitive.
It can be difficult to deduct cost of goods sold (COGS) without harming the quality of the product. Reductions in operating expenses may be less detrimental to the core business.
SG&A costs usually come down after a company merger or acquisition, which makes it possible to reduce redundancies.