## Selling and Distribution Overheads – Accounting

These overheads are absorbed into the cost of goods sold using one of the following bases:

Basis	When Appropriate
Sales value of goods	When different products have similar profit margins
Cost of goods sold	Links overheads to actual cost volume
Gross profit on sales	Reflects earning power of different product lines
Number of orders or units sold	Suitable for uniform-priced products

### Expense-Specific Bases

Expense	Basis
Salaries of salesmen & sales dept	Estimated time devoted to each product
Advertisement	Actual amount per product; common exhibition costs → split on total ad spend ratio
Showroom expenses	Average space occupied by each product
Rent of finished goods godowns / delivery van expenses	Average quantities delivered during the period

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## Control of Selling and Distribution Expenses

### Characteristics Making Control Difficult

Influenced by external factors: market distance, competition, credit terms
Tied to customer behaviour, tastes, preferences – over-control risks losing customers
Largely policy costs – cannot be adjusted quickly in the short term

### Methods of Control

#### (a) Comparison with Past Performance

#### (b) Budgetary Control

#### (c) Standard Costing

Set standards for sales volume, salesmen performance, territory-wise and product-wise costs
Compare actuals against standards; analyse variances
Most rigorous method; requires detailed data

Worked example

### Example 1

Advertisement cost apportionment:

Total advertisement expenditure = ₹1,20,000 (common exhibition)

Product X individual ad spend = ₹40,000; Product Y = ₹60,000; Product Z = ₹20,000 → Ratio 2:3:1

Common exhibition cost charged:

### Example 2

Budgetary control – flexible budget:

Fixed selling overhead = ₹30,000/month

Variable selling overhead = ₹2 per unit sold

Budgeted units = 10,000; Actual units = 9,000

Flexible budget allowance = 30,000 + (9,000 × 2) = ₹48,000

Actual selling overhead = ₹51,000

Variance = ₹3,000 Adverse → investigate

⚠️ Common exam mistakes

Using sales value as the base when products have vastly different profit margins – high-margin products would absorb disproportionately more overhead.
Treating all advertising as a common pool – product-specific advertising must be allocated directly to that product, not spread over all.
Ignoring external factors when investigating variances – an adverse variance may be due to unavoidable market competition, not inefficiency.
Applying standard costing control without setting realistic standards for different sales territories – rural vs urban territories have inherently different cost profiles.

Reference:

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Selling and Distribution Overheads – Accounting, Bases, and Control

Worked example