Definition of 'Selling, General & Administrative Expense - SG&A'
Reported on the income statement, it is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company. Direct selling expenses are expenses that can be directly linked to the sale of a specific unit such as credit, warranty and advertising expenses. Indirect selling expenses are expenses which cannot be directly linked to the sale of a specific unit, but which are proportionally allocated to all units sold during a certain period, such as telephone, interest and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, heat and lights.
General and administration expenses
Expenditures related to the day-to-day operations of a business. General and administrative expenses pertain to operation expenses rather that to expenses that can be directly related to the production of any goods or services. General and administrative expenses include rent, utilities, insurance and managerial salaries Read more: http://www.investopedia.com/terms/g/general-andadministrative-expenses.asp#ixzz2FBsQf4Rk
Investopedia explains 'Selling, General & Administrative Expense - SG&A'
High SG&A expenses can be a serious problem for almost any business. Examining this figure as a percentage of sales or net income compared to other companies in the same industry can
give some idea of whether management is spending efficiently or wasting valuable cash flow. For example, in the television industry businesses that depend on a great deal of advertising must carefully monitor their marketing expenses. A good management team will often attempt to keep SG&A expenses under tight control and limited to a certain percentage of revenue by reducing corporate overhead (i.e. cost-cutting, employee lay-offs)
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Definition of 'Prime Cost'
A businesss expenses for the materials and labor it uses in production. Prime cost is a way of measuring the total cost of the production inputs needed to create a given output. By analyzing its prime costs, a company can determine how much it must charge for its finished product in order to make a profit. By lowering its prime costs, a company can increase its profit margin and/or undercut its competitors prices.
Investopedia explains 'Prime Cost'
For example, the prime costs for creating a can of soda would include raw materials such as the aluminum needed for the cans, ink to customize the cans with the products brand name and logo, soda ingredients (i.e. carbonated water, caramel coloring, caffeine, sugar or aspartame and preservatives), freight charges to transport the raw materials to the manufacturing plant and the wages, taxes and benefits paid to or on behalf of the employees
involved in the soda manufacturing process.
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Fixed cost:
A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages. While in practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in short term cost accounting. Organizations with high fixed costs are significantly different from those with high variable costs. This difference affects the financial structure of the organization as well as its pricing and profits. The breakeven point in such organizations (in comparison with high variable cost organizations) is typically at a much higher level of output, and their marginal profit (rate of contribution) is also much higher.
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Variable Cost
Definition: Variable cost is a cost that varies in relation to changes in production volume. Direct materials are a variable cost. Direct labor may not be a variable cost if labor is not added
to or subtracted from the production process as production volumes change. Overhead is not a variable cost.
Semi variable cost
Production cost (1) that remains fixed up to a certain volume, after which it becomes variable, (2) the total of which responds less than proportionately to changes in volume of activity, or (3) which has both a fixed cost element (such as monthly rental for a phone line) and a variable cost element (call charges). Also called mixed cost.
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A semi-variable cost has characteristics of both fixed costs and variable costs once a specific level of output is surpassed. How It Works/Example: Semi-variable costs remain fixed up to a particular production volume. Beyond this volume, semi-variable costs increase in direct proportion to output. Wages, for instance, are semi-variable costs which multiply by 1.5 beyond 40 hours worked in a given week (also called time-and-a-half). Why It Matters: Semi-variable costs are an important consideration for companies when planning output levels, because semi-variable costs may limit profitability at higher production levels and erode a company'sbottom line.
Product cost
PRODUCT
COST is cost of inventory on hand, also called Inventoriable Cost. They are assets until the products are sold. Once they are sold, they become expense, i.e. Cost of Good Sold (COGS). All manufacturing costs are product costs, e.g., direct material, direct labor, and factory overhead.
Period cost
1. Selling and general administrative expenses identified with the accounting period in which they are incurred, and charged against sales revenue in the same period. Also called period expense. 2. Depreciation, interest, rent, and other such costs associated with the passage of time (instead of with the units of output) and treated as fixed costs.
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Diffeence between product and period cos:
A manufacturers product costs are the direct materials, direct labor, and manufacturing overhead used in making its products. (Manufacturing overhead is also referred to as factory overhead, indirect manufacturing costs, and burden.) The product costs of direct materials, direct labor, and manufacturing overhead are also inventoriable costs, since these are the necessary costs of manufacturing the products. Period costs are not a necessary part of the manufacturing process. As a result, period costs cannot be assigned to the
products or to the cost of inventory. The period costs are usually associated with the selling function of the business or its general administration. The period costs are reported as expenses in the accounting period in which they 1) best match with revenues, 2) when they expire, or 3) in the current accounting period. In addition to the selling and general administrative expenses, most interest expense is a period expense.
