Classification of Indirect Expenses: 3 Types

This article throws light upon the three types of indirect expenses. The types are: 1. Factory Expenses 2. Administrative Expenses 3. Selling and Distribution Expenses.

Type # 1. Factory Expenses:

These overheads include all indirect expenses incurred during production, e.g., from the receipt of order until the product is complete and ready to dispatch. Factory expenses are also termed as Factory overheads, Factory on cost or Works overhead.

These expenses include:

(a) Indirect material cost e.g., consumable stores like Lubricants, Coolants, Cotton waste, Grease etc.

(b) Indirect labour cost, e.g., wages paid to the indirect labour like Supervisor, Foreman, Boiler incharge, Storekeeper etc.

(c) Expenditure on maintenance and repairs of the factory building.

(d) Expenditure on maintenance and repairs of the plant and equipment’s.

(e) Rent, taxes and insurance.

(f) Expenditure on power, such as electricity, steam, gas, hydraulic and compressed air.

(g) Expenditure on internal transport for material and workers.

(h) Depreciation of the factory building and of the plant.

Type # 2. Administrative Expenses:

All expenses incurred on direction, control and administration of a concern are known as Administrative Expenses.

These indirect expenses, also known as office expenses or establishment on cost, and include following overheads:

(a) Salaries and other expenditures incurred on General Manager, Managing Director, Secretary and other officers and their staff.

(b) Office rent and other expenses on maintenance and repairs of office building.

(c) Insurance of office, furniture etc.

(d) Expenses of stationary, printing, telephone, telegraph, postage etc.

(e) Charges for electric consumption.

(f) Depreciation of office building, furniture, equipment etc.

Type # 3. Selling and Distribution Expenses:

Selling Expenses:

These expenses include the expenditure incurred by sales department on the staff, advertisement etc.

Distribution Expenses:

These expenses comprise all expenditure incurred after the comple­tion of the product till it reaches the destination.

Selling and distribution expenses mainly include the following:

(a) Salaries and other expenses like travelling etc. of the sales manager and staff, includ­ing salesmen and office staff.

(b) Indirect Expenses on advertisement.

(c) Discounts, commission and rebates allowed to the customers, agents, distributors etc.

(d) Expenses for preparing tenders and estimates.

(e) Expenses on stationery, telephone, postage, furniture etc.

(f) Expenditure on packing and forwarding.

(g) Expenditure on loading and unloading, freight, warfare and transportation.

(h) Salaries and other allowances to the dispatch clerks etc.