What Is Selling, General & Administrative Expense (SG&A)?
Selling, general and administrative expense (SG&A) is reported on the income statement as the sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. It includes all the costs not directly tied to making a product or performing a service. That is, SG&A includes the costs to sell and deliver products or services, in addition to the costs to manage the company.
Selling, General & Administrative Expenses (SG&A)
Understanding Selling, General & Administrative Expense (SG&A)
SG&A is not assigned to manufacturing costs as it deals with all the other factors that come with creating a product. This includes corporate and sales or marketing salaries, commissions, advertising and any promotional materials. In addition, rent, utilities and supplies that are not part of manufacturing are included in SG&A.
SG&A includes nearly everything that isn't in the cost of goods sold (COGS). Interest expense is one of the notable expenses not in SG&A; it has its own line on the income statement. Also, research and development costs are not included in SG&A.
Selling Expenses in SG&A
Selling expenses can be broken down into direct and indirect costs associated with the selling of a product. Direct expenses only occur when the product is sold and include shipping supplies, delivery charges and sales commissions. Indirect expenses are the costs that occur throughout the manufacturing process and after the product is finished. An item does not have to be sold in order for an indirect expense to be incurred. This can be considered money spent to earn sales. Indirect expenses include product advertising and marketing, telephone bills, travel costs and the salaries of sales personnel.
General and Administrative Expenses
G&A expenses are referred to as the overhead of the company. These are the costs a company must incur to open the doors each day. G&A costs are more fixed than selling costs because they include rent or mortgage on buildings, utilities and insurance. G&A costs also include salaries of all non-sales personnel.
SG&A and Profitability
SG&A plays a key role in a company's profitability and break-even point. It's also one of the easiest places to look when trying to boost profitability. Cutting operating expenses, such as non-sales personnel salaries, can usually be done quickly and without disrupting the manufacturing or sales processes.
SG&A is also one of the first places managers look to during mergers or acquisitions. Following a merger, there are a number of redundant positions and employees. This area is an easy target for a management team that's looking to quickly boost profits. For example, the day that DuPont and Dow Chemical announced their merger in 2015, the companies announced 5,400 job cuts in an effort to save $750 million in expenses.