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A 20% tax rate means the department also has $7,000 of tax expense. For example, say their best product line earned $100,000 of revenue, and had $60,000 of direct expenses and $5,000 allocated SG&A costs. Not only are they potentially allocating too much or not enough SG&A costs, they may be incorrectly calculating the amount of tax each product line or department is responsible for. After a one-time setup of seeing what the costs are actually like across markets, you can use this rate to apply SG&A costs.Įach of the distortions mentioned above impacts your clients’ net income in more than one way. Every once in a while, check to see if the rate is reasonable. Using this information, you can create an estimated rate to apply. Ideally, you’re able to look at these costs over a period of time.

Take your client’s actual shipping, warehousing, advertising, delivery, and other costs and aggregate them based on each customer group. Instead, some of these costs should be spread based on to whom the goods are sold. Normally, all of your client’s selling costs would be added together and spread based on what their goods cost or sold for. Each of these markets has different shipping practices that can’t be accurately reflected through general allocation. Some of their goods may be sold in bulk to general contractors.

For some products, they may work with retail outlets or manufacturing plants. They might work directly with individual customers. Your clients don’t always sell to the same customer group.

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