Allocation of Selling & Commercial Overhead on the basis of Buyers activities

Allocation of Selling & Commercial Overhead on the basis of Buyers activities

The allocation of selling and commercial overhead on the basis of buyers’ activities is most important to calculate accurate profitability in any organization. The buyer’s wise profitability depends on his transaction activities. When any organization can perfectly identify his all transaction, buyer profitability will be more accurate.

Now we will discuss the process of analyzing the data, how will calculate or allocate selling and commercial overhead on his activities.

Area of Selling & Commercial Overhead: Non-manufacturing overheads, which are related to Import & Export of raw material and finished goods respectively. Cost includes § Documentation, § BL collection, § C& F charges, § Bank Charges, § Insurance, & §Transport Cost.

Purpose of developing Selling & Comm. OH allocation method: a) Develop more competent Commercial OH allocation method instead of present flat commercial overhead rate b) Define & calculate Commercial OH separately by i) Export Cost ii) Import cost c) Determine separate rate Export & Import cost for each buyer basis on

  – Nature of Export transaction

  – Incurred documentation cost

  – Nature of procurement a) Ensure buyer-wise budgeted profitability more precisely & accurately. b) Develop a stand-alone module of Pre-costing to automate some daily basis core business report.

Cost differentiate due to Invoice amount & Document Proceed amount:

Selling & Commercial Expenses

Calculation for Import Cost:

Calculation of Export Import Cost

Cost of Working Capital:

>>In RMG, an efficient working capital requires competent movement of Account payables, Account Receivables & Inventories. >>Quality of Job relies on profit rather than the efficient movement of the above three core factors. >>The goal of working capital management is to maximize operational efficiency and reducing capital costs.

Calculation of CWC:

Cost of working capital= RM procurement X WC blockage period X PC rate of 7% p.a

NB: Make the costing simple in manual process, blockage in major item like fabrics would be considered.