Selling And Distribution Overhead

Selling overhead relates to the expenses incurred for promoting the marketing of the products, securing and executing the orders.  Distribution overhead is the cost of delivery and despatch of finished products from the factory to warehouse and from warehouse to customers, and includes the cost of bringing returnable containers, if any, to the factory till they are ready for reuse. Examples are carriage and freight, depreciation of delivery vans, repairs and maintenance and insurance of delivery vans, warehouse rent and expenses, transit insurance of finished goods.  Selling and Distribution are therefore, two distinct functions, but in most of the organisations, they are grouped together as selling and distribution expenses for the purpose of accounting and control.

Accounting of Selling and Distribution Overhead

Accounting of selling and distribution overhead start with the collection of expenses under clearly defined cost account numbers. These expenses are, thereafter, allocated and apportioned to various functions which may be grouped under the following headings:

• Advertisement and sales promotion
• Direct selling
• Transportation
• Warehousing and storage
• Credit and collection

Each of the above functions can be further divided into various territories, such as North,

South, East, West, etc. and expenses can be allocated and apportioned to each of these territories for accounting and control. Some of the expenses such as sales commission, travelling expenses of the salesmen, shipping cost, direct selling expenses are identifiable and therefore, can be allocated directly to the function and territories. Other expenses can be apportioned on some suitable basis.

Control of Selling and Distribution Overhead

Control of selling and distribution overhead is a difficult task because of the nature of expenses. The incidence of such expenses mainly depends on external factors, such as market location and competition, customers behaviour, prevailing terms of sales, etc. on which management has no control. Sales promotional effort differs widely between products, customers and territories. It is often difficult to match the cost with results.  In spite of the aforesaid difficulties, the following methods may be used for controlling them:

• Comparison with past results. Selling and distribution overhead are compared with the previous period figures. If there is significant change in volume between the two periods, then the expenses may be expressed as a percentage of sales, and the percentages may be compared between the two periods.
• Use of budget. A budget is prepared for Selling and distribution expenses on the basis of anticipated sales. The expenses are classified into fixed and variable expenses. If necessary, a flexible budget can be prepared using different levels of sales. Actual expenses are compared against budget, and deviations are analysed and discussed for corrective action.
• Use of standard. Standards may be set up in relation to standard sales volume for salesmen, territories, products, etc., and actuals are compared with standards. Variances are analysed and corrective measures are taken.