Selling and Distribution Overheads

Selling overheads constitute “the cost incurred in promoting sales and retaining customers”, while the distribution overheads constitute “the cost of the process which begins with making the packed product available for dispatch and ends with making the reconditioned returned empty packages available for re-use.” Selling and distribution overheads, therefore, include the following:

Selling overheads

(a) Indirect material: This includes the cost of printing and stationary, mailing literatures, catalogues, price lists etc.

(b) Indirect labour: This includes the salaries, commission etc. of salesmen, technical representatives, sales manager etc.

(c) Indirect expenses: They include advertising, bad debts, rent of the showroom, insurance of showroom, collection charges, travelling and entertainment expenses, expenses of branch establishments, sales office expenses, and fees of directors who pay attention to sales.

Distribution overheads

(a) Indirect material: This includes the cost of packaging cases; oil, grease, spare parts used in maintenance of delivery vehicles.

(b) Indirect labour: This includes wages of packers, van drivers, dispatch clerks etc.

(c) Indirect expenses: They include godown expenses including rent, insurance, freight, carriage outwards and other transport charges, depreciation and running expenses of delivery vans.

The distinction between selling and distribution expenses is to be noted. Selling expenses are incurred for promoting sales by convincing the customer to place an order with the firm. Distribution expenses strictly begin when an order has been obtained and generally end when goods have been dispatched. In other words, distribution expenses are incurred in moving the goods from company’s godown to customer’s premises.

Selling and distribution expenses do not form a part of the cost of manufacture and, therefore, some people do not at all consider them in cost accounts. However, this does not seem to be a correct approach particularly when selling and distribution costs are bound to be quite heavy as is the case with the cosmetics which are quite easy to produce but require a lot of advertising and selling skill for sale. To enable the cost accountant to tell the true cost of making a product and placing it in the market, it is necessary to include selling and distribution expenses in cost accounts. Their consideration merely at the time of fixation of the selling price will not do.

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