SG&A Costs Definition

what is sg&a

You can choose to directly include depreciation expenses in your SG&A expenses or record them separately on your income statement. Before you can enter the total SG&A expenses on your income statement, you’ll need to create a detailed list of the selling, general, and administrative expenses, which can be added up from various expense journals.

  • Commonly referred to as indirect costs, operating or SG&A expenses can include the following.
  • General and administrative (G&A) costs are the overhead costs of a company.
  • For example, sales commissions directly relate to product sales, and yet may be considered part of SG&A.
  • SG&A (alternately SGA, SAG, G&A or SGNA) is an initialism used in accounting to refer to Selling, General and Administrative Expenses, which is a major non-production cost presented in an income statement .
  • This is most often the cost of renting an office or headquarter space but may encompass other items necessary for rent not related to the manufacturing process.
  • To accurately project future SG&A costs, some companies attempt to forecast each individual component.
  • SG&A costs are typically reduced after a company merger or acquisition makes it possible to reduce redundancies.

Corporate controllers must decide how far to go in breaking down SG&A expenses. It may not pay, for example, to count the number of phone calls made or salesperson hours spent in the field per account in allocating selling costs to a product line. Too much refinement may impose unjustifiable record-keeping costs. As the controller explained to the CEO, the erratic profit performance of the comb line resulted from the magnified impact of the sharp change in sunglasses sales on the comb line’s percentage of revenue.

Examples of SG&A Costs in a sentence

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The sales kept the figures up so the company could avoid cutting spending. A variable cost structure is one in which the SG&A costs keep pace with sales. Think of an importer that has only a warehouse and almost no other fixed expenses. It has just a 15% commission that it pays to independent road salesmen.

Market Segment Distortions

These costs are essential for day-to-day operations and can include rent, utilities, office supplies, insurance, employee salaries and marketing expenditure. Well for starters, you can break selling expenses down into direct and indirect costs of selling a product. Direct expenses occur when you sell a product, and they include shipping supplies and delivery charges. Indirect selling expenses include costs you incur before or after a sale, like marketing, advertising, promotional expenses, travel costs, and salaries for salespeople . Also known as operating expenses, SG&A is the overhead required to support operations.

  • The best way to do this is to go through all of your SG&A expenses line by line to see if there are expenses that need to be trimmed or eliminated.
  • Some firms also manage SG&A by outsourcing functions or relying more on temporary workers.
  • Costs such as interest and taxes are not included in SG&A as they are deducted from operating income.
  • She is a Certified Public Accountant with over 10 years of accounting and finance experience.
  • She is an expert in personal finance and taxes, and earned her Master of Science in Accounting at University of Central Florida.
  • Changes to your SG&A expenses should always tie back to specific business objectives.

Reducing non-sales personnel salaries and cutting travel costs will help to regularize these costs. ShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.

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