Selling and Distribution Overheads | Cost Accounting

In this article we will discuss about selling and distribution overheads.

Selling Overhead:

The selling cost refers to the cost of selling function i.e. the cost of activities relating to create and stimulate demand for company’s products and to secure orders.


The selling costs include the following:

(a) Salaries, commissions and travelling expenses to sales staff,

(b) Remuneration of sales director,

(c) Administration and upkeep of sales office and showrooms,

(d) Advertising and publicity expenses,

(e) Cost of catalogues, price lists and samples,


(f) Depreciation, insurance, repairs, maintenance of sales office and showrooms,

(g) Bad debts and costs incurred for collection of bad debts, and 

(h) Discount and rebates.

Distribution Overhead:

The distribution cost will be incurred on goods made available to the customers. These costs include the cost of maintaining and creating demand for the product, making the goods available in the hands of customer.


The distribution costs include the following:

(a) Carriage and freight outwards,

(b) Packing and delivery charges,

(c) Depreciation, insurance and maintenance of delivery vehicles,


(d) Rent, depreciation, insurance and maintenance of distribution outlets,

(e) Administration cost of distribution outlets,

(f) Wages of packers, drivers and delivery boys, and 

(g) Running expenses of delivery vehicles.

The representative types of selling and distribution overheads and their basis of apportionment is given below:

Type of overhead:

1. Rent, rates and taxes, maintenance, heating, repairs and depreciation of sales office buildings, showrooms, godowns,

2. Lighting, heating and cleaning,

3. Depreciation, insurance, repairs and maintenance of vehicles,

4. Fire insurance,

5. Marketing expenses,

6. Salaries in sales department,

7. Advertising,

8. Show room expenses,

9. Credit department expenses,

10. Sales commission,

11. Delivery expenses, and 

12. Rent of finished goods godown.

Basis of apportionment:

1. Floor area occupied by each department,

2. Number of light points, area occupied, meter readings of different departments,

3. Book value or original cost of asset,

4. Capital cost of plant and buildings, value of stock,

5. Sales value of each product,

6. Estimated time devoted to different products’ sales,

7. Actual amount incurred for each product or Sales value,

8. Average space occupied by each product,

9. Value of credit sales,

10. Actuals, sales value,

11. Volume, distance, weight, and

12. Average quantities delivered during the period.

Problems in Controlling Selling and Distribution Overheads:

The practical difficulties involved in controlling the selling and distribution overheads are as follows:

(a) The incidence of selling and distribution overheads depends on external factors such as distance of market, nature of competition, distribution channels, discounting and credit policy etc.

(b) They are dependent upon customers’ behaviour, tastes and habits etc.

(c) These expenses are of the nature of policy costs and are not subject to control.

The above difficulties can be overcome by adopting the following steps:

(i) Comparing the figures of selling and distribution overhead with the figures of previous period.

(ii) Selling and distribution overhead budgets may be used for control by comparing the actual with budgeted figures.

(iii) Standards can be set up for salesmen, territories, products etc.

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