Selling, General, & Administrative Expense (SG&A)
Candlefocus EditorThe primary objective of SG&A is to manage a company’s overhead expenses. This means all the company’s day-to-day operating costs are grouped together in this category on income statements. This allows for easy control and optimization of expenses to ensure a business remains profitable.
SG&A is made up of mostly indirect expenses that are not necessarily associated with the production of the goods or services being sold by the business. These indirect costs are related to the general operation of the business, such as research and development, inventory costs, building rent, travel expenses and insurance premiums. Because these types of expenses are not assigned to a specific product, they are not included in the cost of goods sold. It’s also important to note that SG&A does not include manufacturing overhead costs, which is a separate expense.
SG&A is an extremely important component of running a business. as these expenses support all other business activities. Reducing SG&A is typically one of the first steps taken when a business is struggling to be profitable. Managers target SG&A for cost reductions because they do not directly affect the product or services that is being offered by a business.
In conclusion, SG&A is a critical component of successful business management. The purpose of SG&A is to manage overhead expenses and to ensure that the business remains profitable. Reducing SG&A is one common step taken by managers when the company needs to improve its bottom line. It is important to note that SG&A is distinct from manufacturing overhead costs, which are separate expenses. As long as managers keep a close eye on SG&A expenses, they should be able to make sound financial decisions that will keep their business profitable.