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  Selling and Distribution Overheads

Introduction to Selling and Distribution Overheads

As the name depicts, selling overheads are the overheads that are acquired for the selling efforts needed for selling the product. Alternatively, cost acquired for creating demand and securing order for the firm's product is termed as selling overheads. There is a variation among selling and distribution functions. When selling function intended at creating the requirement, the distribution functions object is to carry out the demand. So distribution function comprises the object of reaching the goods. Distribution overheads are the costs acquired for taking place the orders received. Advertising expenses, salesmen's salaries and commission, sales promotion costs, discounts offered are a number of the instances of selling overheads. Transportation, secondary packing Warehouse rent are some of the instances of distribution costs. Selling and distribution overheads comprise no direct connection with the production cost like these costs are bound to change quite extensively depending upon various  factors such as channels of distribution, availability of fi nance, the degree of competition, sales promotion policy and so on. These expenses are categorized and are collected as per to Cost Account Number so that it becomes simple for ultimately absorbing similar in the cost of product.

Accounting of Selling and Distribution Overheads

The final purpose of accounting of selling and distribution overheads is to absorb them in the product units. So they are situated to the departments, products, territories, etc to the extent feasible. Where it is not feasible to allocate them, they are apportioned on some appropriate basis. After the apportionment, they are ultimately absorbed in the product. The following are several techniques of accounting of selling and distribution overheads.

i. Sales service departments and territories:

Selling and distribution costs are situated to sales service departments and sales territories. Costs that cannot be allocated are apportioned to such type of departments via selecting some appropriate basis like net sales, sales quotas, population coverage, floor space etc. The entire selling and distribution costs of sales service departments are apportioned to sales territories on some basis. This exercise will assist the organization to get ready a territory wise Profit and Loss Account via comparing the selling and distribution cost of each territory along with the sales of each territory.

ii. Salesmen wise analysis:

This technique is followed for evaluating the presentation of salesmen. The selling and distribution cost is analyzed through salesmen to ascertain their relative ability. Within this technique, the selling and distribution costs are situated to each salesman wherever possible. Where it is not feasible they are apportioned to salesmen on some appropriate basis.

iii. Product wise analysis:

Within this technique, all the direct costs are charged straight to each product line. Alternatively, indirect costs are charged or apportioned to the products on some appropriate basis such as net sales or other appropriate base. This technique is mainly helpful while the management needs to find out the relative profitability of each product line. Decisions such as closing an unprofitable line or additional pushing a profitable product line can be occupied on the basis of such type of analysis.

iv. Sales order wise analysis:

Within this technique, it is feasible to find out the profit on sales order through charging all expenses to sales order. Direct costs are charged straight to the sales orders when indirect expenses are apportioned to sales orders on some appropriate basis.

v. Other methods:

Within a departmental store, analysis of selling and distribution costs can be charged to every department so that it is feasible to observe the profitability of every department. Costs that cannot be situated are apportioned on some appropriate basis. In retail establishments, if the management is involved in knowing the profitability of dissimilar lines of merchandise, costs can be situated or apportioned to every line of merchandise such as hardware, timber, coal, consumer durables, medicines, general merchandise, cosmetics etc.

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