What are general and administrative costs

Selling Overheads and Administrative Overheads: Everything You Need To Know, Explained!

Products generate marketing, sales and administration costs. However, these costs cannot be assigned to a single product. Therefore, to calculate these costs, they are distributed across all products and calculated as overheads. Under the Overhead all costs that cannot be directly allocated to individual cost units and cost centers are summarized. Typical examples of overhead costs are material, manufacturing, or administrative Distribution overheads. They are allocated and calculated indirectly using a distribution key.

Distribution overheads and administrative overheads

In business administration, overhead costs are referred to as SG&A designated.

Selling, General and Administrative Expenses

In business administration, overhead costs are referred to as SG&A. SG&A stands for Selling, General and Administrative Expenses. They are created for material, production, sales and administration. However, they cannot be assigned directly to a product, but relate proportionally to several products of a company.

The costs that are required to manufacture a single product are determined using the overhead calculation. On the Sales overhead rate, which is determined via the operating accounting sheet (BAB), the costs are offset against the products.

German accounting distinguishes between two main types of overhead costs:Distribution overheads and administrative overheads.

To the Distribution overheads count for example

  • Salaries for sales and marketing employees
  • Rent for business premises of these departments
  • advertising
  • transport
  • Market research

TheAdministrative overheads relate primarily to salaries in the administrative area (accounting, human resources, management) and the rental costs for the business premises that these departments occupy. Office supplies and depreciation on office and business equipment also count as administrative overheads.

SG&A ratio: It all depends on the right ratio

A common benchmark for comparing firms is the relationship between SG&A and a company's sales: theSG&A ratio. You calculate this ratio by dividing your total SG&A costs by your total sales. The SG&A ratio indicates what percentage of your sales you spend on SG&A costs.

This metric varies depending on the sector of the company. There is one for each sectorSG&A benchmark, so an approximate reference value.

Basically: the lower the SG&A ratio, the better. A “normal” ratio is between five and 20 percent.

Find out about the standard value of the SG&A ratio for your sector in order to orient yourself towards it and to avoid excessive overhead expenses.

Types of distribution overheads

The distribution overheads mainly relate to expenses for advertising and marketing measures. This is where the Penta Online Business Account proves to be particularly useful: You can use it to easily categorize your expenses and thus always have an overview of which costs are assigned to which areas. At the end of a month or a financial year, your account will provide you with the Selling overhead amountthat your company caused. This saves you the hassle of finding and adding bookings by hand. At the same time, you will receive exact numbers that will help you in everyday business.

Administrative Overheads = General Administrative Costs?

The second major type of overhead is thatAdministrative overheads. The termgeneral administrative costsused synonymously. Examples of general administrative expenses are expenses used for bookkeeping, HR, and running the business. Even with these expenses, the categorization that the Penta Online Business Account allows you to pay off. The easiest way to keep track of things is to decide from the start which cost center the booking to be made is to be assigned to.

How Penta helps you calculate distribution overheads

Penta's online business account contributes a large part to the simple Calculation of your distribution overheads and administrative overheads at. Our users confirm that they are using theCategorization function and thanks to a good user experience it is easier to keep track of your overhead costs.

A good overview will sooner or later pay off for your company. Regardless of the size of a company, be it a start-up or a long-established company: the calculation of these important key figures is a must for every company. Anyone who knows what distinguishes sales overheads and administrative overheads, how overheads are calculated and what the SG&A ratio says has a clear advantage. So you can see how you stand compared to your competitors and whether you need to adjust your spending structure if necessary.

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