How to Calculate Selling & Administrative Expenses in Managerial Accounting

by David Ingram

Managerial accounting is the subsection of accounting that deals with internally focused information. Unlike financial accounting, which focuses primarily on creating financial statements for external users, managerial accounting focuses on generating reports for internal analysis and providing insight for making managerial decisions. Selling, general and administrative expenses is a component of the profit equation that includes a range of costs not easily assignable to other categories. Knowing how to calculate selling, general and administrative expenses is crucial for understanding your cost structure, as well as preparing an income statement.

Calculate the total expenses for compensation in the sales department. Sales compensation makes up a large part of direct selling expenses. Include wages, salaries, commissions, bonuses and benefits when calculating total sales compensation. Calculate a total compensation figure on an annual basis to make it easy to factor in benefits and bonuses. Then divide the annual figure by different time periods to break costs down on a daily, weekly or monthly level.

Add up all other direct selling expenses. Direct selling expenses are costs that directly and obviously contribute to the sales process. Add up the costs of facilitating transactions, and any other costs that directly contribute to sales. Add up credit card transaction fees incurred during the period, the cost of extending warranties, and the cost of other items such as paper bags and receipt tape. Include advertising expenses incurred during the period, as well as any costs for sales promotions, such as product giveaways and free samples. Group these costs together with sales compensation to arrive at a total direct selling costs figure.

Calculate the indirect selling expenses. Indirect selling expenses consist of all things that do not directly facilitate the sales process, but which are necessary components of selling processes. Indirect expenses can be more challenging to identify than direct expenses. Add costs for things like postage and shipping materials, as well as Internet and telephone expenses.

Add up the general and administrative expenses. General and administrative expenses represent everything that does not directly contribute to sales, but which are necessary for the company's operations. Include expenses such as rent, mortgage payments, utilities, property taxes and insurance. Include salaries, wages and other compensation for administrative employees, such as receptionists, data-entry specialists and filing clerks. Add in the cost of non-cash accounting expenses, such as depreciation and amortization.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

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