Page 153 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes The sales overhead can be classified into two categories viz fixed sales overhead and variable

sales overhead.

Did u know? What is meant by the Fixed Sales Overhead?

Fixed sales overhead is the expenses incurred for promoting the sales, which remains the

same or fixed irrespective of the volume of the sales.

Example: 1. Salaries to Sales Department
2. Salaries to the Administrative Staff
3. Salary to Salesmen
Variable sales overhead is the expenses incurred for the promotion of the sales, which is varying
along with the volume of sales of the fi rm.

Example: 1. Sales commission
2. Agents commission

3. Carriage outward expenses.
The sales overhead budget is the statement of estimates of the various sales promotional expenses
not only based on the early/yester period sales promotional expenses but also on the sales of
previous years.

Example: The following expenses were extracted from the books of M/s Sudhir & Sons,
to prepare the sales overhead budget for the year 2006:
`
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Radio 2,000
Television 12,000
Salary to
Sales Administrative Staff 20,000
Sales force 15,000
Expenses of the sales department
Rent of the building 5,000
Carriage outward 5% on sales
Commission at sales 2%
Agents’ commission 6.5%
The sales during the period were estimated as follows:
` 80,000 including Agents Sales ` 8,000
` 1,00,000 including Agents Sales ` 10,500
Solution:
The most important step is to find out the variable portion of the sales overhead of M/s Sudhir

& Sons.

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