What Are Selling, General, and Administrative Expenses (SG&A)?The category of selling, general, and administrative expenses (SG&A) in a company's income statement includes all general and administrative expenses (G&A) as well as the direct and indirect selling expenses of the business. This line item includes nearly all business costs not directly attributable to making a product or performing a service. SG&A includes the costs of managing the company and the expenses of delivering its products or services. Show
Key Takeaways
Selling, General & Administrative Expenses (SG&A)Understanding Selling, General, and Administrative Expenses (SG&A)SG&A plays a key role in a company's profitability and the calculation of its break-even point. SG&A is also one of the first places managers look to when reducing redundancies after mergers or acquisitions. That makes it an easy target for a management team looking to quickly boost profits. Selling expenses can be broken down into direct and indirect costs. Direct selling expenses are incurred only when the product is sold. Indirect selling expenses occur throughout the manufacturing process and after the product is finished. G&A expenses are the company's overhead. They are incurred in the day-to-day operations of a business and may not be directly tied to any specific function or department within the company. They are usually fixed costs that are incurred disregarding the amount of sales or production incurred during a certain period. Many SG&A expenses are unavoidable. For example, companies are often required to maintain insurance and may find it impossible to operate without incurring a cost of maintain its headquarters. Types of SG&A ExpensesSelling ExpensesSelling expenses are often related to the expenses necessary for the company to directly interface with customers. These types of expenses include:
General ExpensesGeneral expenses are often necessary to run a business. These costs would likely need to be incurred regardless of type of product or industry a company operates within. These types of expenses include:
Administrative ExpensesAdministrative expenses are largely related to the cost of personnel. These people may be internal staff or may be external parties providing services for a fee. These people often do not directly interface with the manufacturing or sale of goods. These types of expenses include:
General and administrative costs are rarely reported separately; it's fairly common to see these two costs reported together. How to Calculate SG&A ExpensesCalculating SG&A expenses is straightforward once expenses have been classified into different categories. Several items to keep in mind when calculating SG&A costs include:
How to Report SG&A ExpensesSG&A has a very specific place on a company's income statement. Net revenue is always reported at the top, then COGS is deducted to arrive at the gross margin. SG&A and any other expenses are listed below the gross margin. When these expenses are deducted from the gross margin, the result is operating profit. It's important to note that not all expenses have been recorded when calculating operating expenses. Some expenses such as interest expense or tax expense are reported below operating income. A company may report SG&A in a number of different ways. Companies may aggregate all of these expenses in a single SG&A line, or it may segregate selling costs from general and administrative costs. SG&A expenses as a percent of revenue are generally high for healthcare and telecommunications businesses but relatively low for real estate and energy. SG&A Expenses vs. Operating ExpensesIn many instances, SG&A expenses and operating expenses are one and the same. Both encompass the expenses necessary to operate a business independent of the costs to manufacture goods. There are several subtle differences between SG&A expenses and operating expenses. Larger companies often separate these types of costs into smaller, specific SG&A categories as this is often easier for companies to track and monitor costs in these groups. Management often has discretion how many of these costs are reported on the income statement in respects to how to group these types of costs. There are also a few specific accounts that may warrant specific accounting treatment that exclude them from SG&A. For example, research and development costs are often not to be included in SG&A. In addition, depreciation costs are often reported in this section of the income statement but excluded from SG&A as well. Real-World Examples of SG&A ExpensesAs part of its Q3 2022 financial reporting, Apple reported $12.809 billion of operating expenses for the quarter. Of this, $6.797 billion was research and development, while $6.012 billion was selling, general, and administrative. Although the company does state that increases to SG&A from prior periods relates to headcount, advertising, and professional services, there is little more transparency beyond these notes. Apple, Q3 2022 Income Statement (Select Accounts).A more in-depth example is provided by Amazon. In the three months ending June 30, 2022, Amazon reported $10.086 billion of sales and marketing expenses in addition to $2.903 billion of general and administrative expenses. Both figures represent at least a 30% increase from the same period from the year prior. Amazon, Q2 2022 Income Statement (Select Accounts).Amazon also provides guidance via the notes to its financial statements to explain what comprises the sales and marketing category in addition to the general and administrative category. Amazon, Sales and Marketing Expenses. Amazon, General & Administrative Expenses.What Is the Difference Between COGS and SG&A?SG&A includes almost every business expense that isn't included in the cost of goods sold (COGS). COGS includes the expenses necessary to manufacture a product including the labor, materials, and overhead expenses. SG&A costs are the residual expenses necessary to run the organization and incur costs less specifically tied to the
cost of making the product. What Are Selling Expenses?Selling expenses include both indirect and direct business costs.
What Are General and Administrative (G&A) Expenses?The G&A of SG&A may be called overhead expenses. A business has many expenses that are not directly related to making or selling a product. Office rent, utilities, and insurance all are costs of doing business. Departments like human resources and information technology support the business but do not take a direct role in product creation. How Can SG&A Be Useful to a Business Manager?SG&A is both critical to the success of a business and vulnerable to cost-cutting. Cutting the cost of goods sold (COGS) can be tough to do without damaging the quality of the product. Cutting operating expenses can be less damaging
to the core business. SG&A costs are typically reduced after a company merger or acquisition makes it possible to reduce redundancies. Does SG&A Include Salary?It depends. The cost to directly manufacture products is included in COGS. This includes salaries such as manufacturing line supervisors. Other salaries such as accounting staff are included in SG&A. The Bottom LineA company must incur many different types of costs to run a business, and many of those expenses are not directly tied to making specific products. These broad costs are classified as selling, general, and administrative costs. Reported separately from COGS, these expenses are deducted from gross margin to determine a company's net income. How does HR work in a small business?HR is responsible for staffing and onboarding. This includes reviewing the employee handbook, applicable paperwork and any other vital information. HR may also be responsible for training employees, providing ongoing employee development and seting up payroll and benefit plans.
What is the difference between HR department and HR management?The overall aim of HRM is to improve the overall employee performance whereas the objective of HRD is very specific to enhancing the skills, competency levels and knowledge base of employees.
How does the HR function vary between Organisations?Although all HR departments share the same goals of effective problem solving and plan development, they differ in the paths they take to reach these goals. Size, responsibilities, resources, and recruiting methods are the main differences between HR in small businesses versus large companies.
Which of the following is the largest professional HR association?Summary: “The Society for Human Resource Management (SHRM) is the world's largest HR professional society, representing 285,000 members in more than 165 countries.
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