Unit 2 Second Portfolio

Unit 2 Portfolio Activity
BUS 5110
University of the People
September 17, 2020
Selling, General & Administrative (SG&A) Expenses
Operating expenses are referred to as selling, general and administrative costs (SG&A) and both
include non-production costs sustained at any time by a corporation. This also entails such
expenditures as renting, advertisement, marketing, payroll, lawsuits, travelling, food, wage
control, incentives, and much more (Walter, 2009). Under SG&A, certain companies define both
depreciation and interest expenses. Whether this is the case, then gross profit less SG&A equals
to profit before tax, often defined as earnings before taxes. (EBT) (Walter, 2009).
I utilized the financial information of Raymond's PLC, a textiles business for my discussion post.
SG&A costs are accounted for on the income statement and calculated after going through the
books for that year to add up all the non-cost of goods sold, interest or income tax expenses
(Walter, 2009). The COGS for Raymond’s PLDC incorporates the fabric, buttons, thread,
packaging and so on. Product costing includes costs that are incurred directly in producing a
product. Suppose, the company is incurring expenses on purchasing inventory then it is
considered as product cost. SG&A is not assigned to manufacturing costs as it deals with all the
other factors that come with creating a product.
Selling expenses are any sales or marketing expenses that the organization has when selling the
item. This includes distribution (for example transporting costs, protection and coordination),
marketing (ads and advancements) and selling costs (for example compensation, commissions
etc.) (Walter, 2009). The selling component of this expense line is related to the direct and
indirect costs of generating revenue (from selling products or services). Direct expenses are those
incurred at the exact point-of-sale for a product or service. Indirect selling expenses are those
that are incurred either before or after the sale is made (Walter, 2009).
Administrative expenses are the expenses an organization incurs not directly tied to a specific
function such as manufacturing, production, or sales. Salaries of executives, fees paid to the staff
accountants, consulting fees and costs incurred in implementing technology are examples of
administrative expenses (Walter, 2009). G&A expenses are the overhead costs of a business,
many of which are fixed or semi-fixed. These costs don’t relate directly to selling products or
service, but rather to the general ongoing operation of the business (Walter, 2009). The most
common examples are rent, insurance, utilities, supplies, and expenses related to company
management, such as salaries of executives, admin staff, and non-salespeople (Walter, 2009).
SG&A can be forecasted through any of the following methods: as a percentage of sales revenue,
a growth rate over the last period, or as a fixed dollar value (Walter, 2009). If SG&A is a
consolidated, one-line item, the analyst must use discretion to select one of these (or other)
methods to account for all the various expenses baked into that one-line item (Walter, 2009).
Sometimes, SG&A will be a section, with items broken out in individual lines. If this is the case,
then different line items will have differing forecast methods (Walter, 2009). For example, rent
most likely will be a fixed dollar value every period. Advertising expenses, on the other hand,
will vary with the strategic decisions a company makes during the given period. (SG&G, n.d.)
In product costing, SG&A to sales ratio tells what percentage of every bit of money our
company earned gets caught up in the SG&A costs expenses.
SG&A ratio = Total SG&A/ total sales revenue
In an income statement, gross profit less SG&A (and depreciation expense) equals the operating
profit, also known as earnings before interest and tax (EBIT). (SG&G, n.d.)
Businesses usually mess up with their spending with SG&G and this is where external auditors
find faut when looking into small company books. A company that has a strong, centralized
command and control management system is likely to spend more on general and administrative
expenses than a business that has a decentralized organizational structure.
References
SG&A. (n.d.). Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/accounting/what-is-sga/
Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Retrieved from
https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-
cost-accounting.pdf

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Unit 2 Portfolio Activity

SG&A ratio = Total SG&A/ total sales revenue

SG&A. (n.d.). Retrieved from

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