Administration, Selling, Distribution, Research and Development Functional Analysis
The term administration refers to the formulation of policy, direction, control and management of affairs. The general functional expenses are included in the administration overhead. In other words, administrative services are necessary for the effective operation of any business. Hence, such service expenses are treated as administration overhead. The printing and stationary for administration, rent, rates, insurance of general office, bank charges, telephone, postage, and the like are the examples of administration overhead.
The selling overhead refers to the cost of selling function ie the cost of activities relating to create and stimulate demand for company products and to secure orders. Salaries, Commission and traveling expenses of sales representatives and executives, advertising and publicity expenses, samples, printing of price lists, discounts, rebates, bad debts and the like are the examples of selling overhead.
The term distribution refers to the activities relating to the sequence of operation starts from making the packed product available for dispatch and ends with making reconditioned returned empty package available for reuse.
Distribution is also one of the functions like manufacturing, administration and selling. Running expenses of delivery van, wages of packers, carriage and freight outwards, rent, rates and insurance of warehouses and the like are some of the examples of distribution overhead.
Research and Development Overhead
Research overhead is the cost of searching for new products, new techniques for production or finding new equipment. The development overhead is the cost of implementation of research result on commercial basis. Cost of raw materials used for research, salaries and wages of R and D department staff, subscription to books and journals, subscription to research association, patent feeds and the like are examples of research and development overhead.