General And Administrative Expense - G&A

  

See: SG&A. See: Overhead.

When you read "administrative," think "bureaucracy" and then ask, "How long until robots replace most of this overhead?"

You own a business. Every day you have expenses such as rent, utilities, office supplies, coffee etc. You have items and bills you have to pay in order to operate as a business. How can you go about daily operations without pens? Or filing cabinets? Or, most importantly, a coffee machine?

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Cost Accounting: How Do You Properly Acc...8 Views

00:00

and finance Allah shmoop properly accounting for overhead And yes

00:08

it's an important question for very tail Giants and N

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BA centers are also key question for business owners Will

00:15

you run a business that makes candles scented like particular

00:18

cities You know for people who have moved away and

00:21

gotten homesick You have your Brooklyn coffee shop model your

00:25

Dubai Lamborghini dealership model there your Paris and San Francisco

00:29

St Urine model Each candle cost you twelve bucks to

00:33

make and they sell for thirty each That twelve dollars

00:36

represents what's called any accounting world Caw gse Nora cost

00:40

of goods sold well It encompasses the direct expenses that

00:44

go into making the candles You know the wax the

00:46

wick the glass holder the artificial and natural ingredients needed

00:50

Teo make the smell It also includes things like direct

00:53

labor and all the other costs that you Khun directly

00:55

attribute to each candle But those CAW GSE expenses don't

00:59

account for everything You've got a whole set of other

01:02

costs that get incurred for things outside of the production

01:05

process You've got the accounting in HR departments You've got

01:08

the R and D lab constantly trying to match smell

01:12

combinations with different cities You've got the fleet of executive

01:15

private jets and a small island in the Caribbean where

01:18

you hold your annual too weak you know think sessions

01:21

These things cost the company money but you can't assign

01:25

the expenses to any particular candle thes air known as

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Yes overhead costs Yeah because a while to get to

01:30

the title there But we did in accounting speak They

01:33

get a special name They're known as SG any expenses

01:36

or sales general and administrative expenses So we're talking stuff

01:41

related to sales or admin obviously plus anything that applies

01:44

to the company in general I eat not to any

01:46

particular product So like for your candle company these overhead

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costs Mike total five million bucks a month You have

01:54

to pay those expenses those overhead expenses whether you sell

01:57

one candle or yourself five million the overhead does not

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change based on your sales volume But you have to

02:03

sell enough candles to reach that five million dollar mark

02:05

Otherwise well you post a loss for that month enough

02:08

losses in a row and well you'LL run out of

02:10

money and then the b word bankruptcy Remember you're selling

02:13

candles for thirty bucks that cost twelve bucks to make

02:16

The thirty represents your revenue That twelve represents your cog

02:20

which leaves eighteen left Poor candle for everything else So

02:24

that eighteen dollars is known is the gross profit It's

02:26

the prophet you earn from each candle net not counting

02:30

the overhead cost The gross profit represents the first off

02:33

along the income statement You started revenue and go through

02:36

COGSA and then you end up at the gross profit

02:39

right there Well the next step takes care of the

02:41

S g N A Expenses You sell half a million

02:44

candles in a month Each one is worth a gross

02:46

profit of eighteen bucks there That's nine million dollars in

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total gross profit for that month Well you have five

02:53

million in overhead right It's sixty million a year to

02:55

run your business Those DNA expenses all told five million

02:59

a month So what does that get you while you

03:00

got nine million gross there minus the five million and

03:03

overhead and that gives you four million bucks after overhead

03:06

Well that four million dollars number represents what's called your

03:09

operating profit or pretax profit If you want to know

03:12

you're operating margin Well you just relate that number to

03:16

the revenue figure like that So you sold five hundred

03:18

thousand candles at thirty bucks each Total revenue fifteen million

03:21

dollars With that sales lovely ended up with four million

03:23

in operating profit and four million divided by fifteen million

03:26

gives you an operating margin about twenty six point seven

03:29

Some like that So when you sold five hundred thousand

03:31

candles you paid all the expenses needed to make the

03:33

product Then he paid all your overhead which left you

03:36

with four million dollars over twenty six point seven percent

03:39

of your total revenue wealth To figure out your break

03:41

even point you just have to work through the process

03:44

backwards You have five million dollars in overhead you have

03:46

to pay for well Each candle gives you a gross

03:49

profit of eighteen dollars So the question How many eighteen

03:52

dollars bits of gross profit do you need to pay

03:55

for five million in overhead We just divide that five

03:58

million by eighteen and that gets you roughly two hundred

04:00

seventy seven thousand eight hundred seventy eight thousand candles That's

04:04

your break even production level Sell that many candles and

04:07

you'LL pay your overhead All sales beyond that point Well

04:10

generally fall to the bottom line like through that n

04:13

ba center Yeah you need to make sure all the

04:15

door jams and ceilings in your house or at least

04:17

eight feet tall Then you don't have to worry about 00:04:19.614 --> [endTime] you know bumping into that overhead

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Finance: What is overhead?
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