Explanation:
The administrative expenses of the company consist of payroll expenses for senior executives and expenses associated with supplies or services, such as legal, accounting, and clerical work. Typically, these costs are not included in gross margins because they are indirect in relation to the production of goods or services by the organization.
There are some administrative expenses that are fixed in nature because they are incurred as part of the foundation of business operations. These expenses would continue to exist regardless of production levels or sales levels. Maintenance costs can also be described as semi-variable costs.
In the same year in which they occur, businesses can deduct from their administrative costs tax refunds that are reasonable, normal, and necessary for their business activities. These expenses must be incurred during normal business hours.
In a nutshell:
- Costs incurred for business operations but not directly associated with producing products or services are called administrative expenses.
- Accounting departments may allocate administrative expenses according to a percentage of revenue, expenses, or some other factor.
- It is common for budget reductions to start with administrative expenses due to their intangibility.
- A certain level of administrative expenses is inevitable as part of conducting business.
60+ hours
9 courses
