Question

In: Accounting

can selling and distribution expenses vary by customers & why

can selling and distribution expenses vary by customers & why

Solutions

Expert Solution

Yes, selling and distribution expenses vary by customers

Business earns income when there is sales. In order to achieve sales, costs will be incurred. These will depend on what the selling method is. There may be promotional leaflets or catalogues, travel expenses to visit customers or sell in the marketplace, a commission payable to a sales agent etc. The selling and distribution cost is directly linked to sales and the customer base a company has.

Selling and distribution costs as a part of the overheads, may be variable, for example, a sales commission, or fixed, such as the monthly magazine. Very often small businesses overlook them, because they have not evolved a selling strategy, and then find they cannot afford to incur the expenditure necessary for marketing. Whereas as large business house run their business mainly upon how strong their sales and marketing team works.

The proportions of costs incurred can vary dramatically by business, depending upon the sales method used. For example, a customized product will require considerable staff time to obtain sales, and so will require a large compensation and travel cost. Alternatively, if most sales are handed off to outside salespeople, commissions may be the largest component of selling expense. An online store may have few direct selling costs, but will incur large marketing costs to advertise the site and promote it through social media.

There are varying treatments of selling expenses in accounts. Under the accrual method of accounting, you should charge them to expense in the period incurred. Under the cash basis of accounting, you should charge them to expense when paid.


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