Company management often targets the SG&A line when looking to boost profitability as reductions are less likely to affect product or manufacturing quality. The break-even point for a company, which is where revenue earned equals the expenses incurred, can be adjusted most easily and efficiently by changing the SG&A cost component. SG&A is one of the line items requiring detailed examination when comparing company cost structures and profitability. SG&A is critical when looking at a company’s profitability, conducting break-even analyses, and cost-cutting scenarios. SG&A is included in the calculation of operating margin, which measures how efficiently a company converts the revenue it generates into operating profit.There are many types of expenses that are included in this line item including, advertising, marketing, rent, and other administrative-related expenses.The expenses are included in the calculation of operating profit, profit before tax, and net income.Selling, General, and Administrative expenses are reported in a company’s income statement and represent any overheads included in a company’s core operating business related to supporting the business.SG&A expenses are generally not product-related costs, therefore companies don’t assign them to the cost of goods sold or to inventory as these costs are not attributable to the manufacturing process. However, over a period of a whole year, these expenses are fairly flexible, so when a company forecasts, it can link the SG&A expenses to sales. It is important to note that SG&A, unlike COGS, is not directly related to the sales number. In some cases, depending on the context, depreciation expense can also be included in SG&A. Some of the expenses included within SG&A include advertising, sales commissions, marketing, rent, utilities, management salaries, travel, meals, stationery, and more. SG&A is given as an expense line on the income statement and encompasses all direct and indirect selling costs incurred by the business. Selling, General, and Administrative (SG&A) expenses reflect the overhead costs a company incurs to promote, deliver and sell a company’s product or service, as well as expenses involved in managing the entire company. What is Selling, General & Administrative Expenses?
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