Control of Administrative, Selling and Distribution Overhead

- Bhavik Ambani -Prateek Jain -Suman Kothari -Swati Singh -Rahul Agarwal -Bhupesh Uppal

Administrative Overheads
Administrative Overhead are incurred for planning, general management and control of an organization Depending on the organizational structure two types of administrative costs are incurred in an organization are:
- Within the Factory. - Centrally in the Head office.

Administrative Overhead Includes

Indirect Material

Indirect Labor
Indirect Expenses

Departments
Accounts Departments

Factory Estate Department

General office Department Legal Department Personnel Department Secretarial Department

Accounting Methods
Transfer to Costing Profit and loss A/c.

Apportionment to Manufacturing, Selling and

distribution Division Addition as a separate item of Cost

Control of Administrative Overhead

It relates to a general and a financial management of an organization their major portion represent policy cost that are mostly fixed in nature therefore, largely non-Controllable.

Methods of Controlling Cost

Comparison with past performance

Budget control
Standard Costing

Selling Overhead
Selling overheads includes the costs incurred in selling to existing customers. They consist of following Items Direct Selling Cost Advertisement and Sales promotion Credit and collection costs Financial and general administrative costs

Accounting for selling and distribution

It Involves 3 stages analysis Analysis by Nature/Object - such cost items nature wise includes 1. Advertising 2. Remuneration 3. Custom Excise Duty 4. Deprecation 5. Freight 6. Heating Etc.

Accounting for selling and distribution

By Function analysis
Expenses Item Advertising
Credit Control Depreciation Insurance Rent Warehousing Transportation

Bases Sales value / Physical Unit

Number of orders Value of assets Property value Floor Space Sales Volume Weight

By product/Cost Units.

Question :following data of ABC ltd. for a certain month

Territory 1(Rs) Territory 2(Rs) Territory 3(Rs)

Selling expenses
Distribution cost No. of units sold Sales

7600
4000 16000 76000

4200
1800 6000 28000

6240
2000 10000 52000

The company adopt sales basis and quality basis for application of selling & distribution cost respectively a) The territory wise overhead recovers rates separately for selling & distribution cost b) The amount of selling and distribution cost chargeable to a consignment of 2000 units of a product sold in each territory at Rs 4.5 p.u.

Solution
a)

Statement showing determination of overheads recovery rates for selling & distribution cost
Selling cost recovery rate = (selling exp / sales) * 100

Territory 1 Rs (7600/76000)*100=10% of sales Territory 2 Rs (4200/28000)*100=15% of sales Territory 3 Rs (6240/52000)*100=12% of sales Distribution cost recovery rate per unit sold = (distribution cost / no. of units sold ) Territory 1 (Rs4000/16000units) = Rs 0.25 p.u. sold Territory 2 (Rs1800/6000units) = Rs 0.30 p.u. sold

Statement showing determination of selling & distribution costs charged to consignment of 2000 units Territory 1 Territory 2 Particulars Territory 3
b.
No. Of units sold Sales revenue Selling cost Distribution cost Total cost 2000 Rs. 9000 900 500 1400 2000 Rs.9000 1350 600 1950 2000 Rs. 9000 1080 400 1480

Control of Selling and Distribution Overhead

Selling and distribution and not directly related to products they are indirect components of sales which incur cost. The problem associate with the control are: Customers/Competitors. Direct supervision over staff/representatives. Fixation of a market price. Difficulty in obtaining data. Fixation of market price without reference to cost of production.

Techniques of Control of Selling and distribution Overhead

Sales Analysis
o o o o

Salesmen wise Sales territory Product line wise Customer wise

Budgets
Standard Costing

Absorption of Selling Overhead

Rate per Unit

Absorption Rate per Unit =

Percentage of sales

Absorption percentage on Sales =

X 100

 Percentage on a Work Cost

Absorption percentage of work cost

=

X 100