Administrative Costs

Administrative costs are usually not part of the burden costs that a Cost Accountant will determine for a business, and therefore are not part of the costs of a manufactured part or service. These costs are reported separately and include:

  • Sales people salary and associated costs
  • Upper Management salary and costs

There is a good reason that these costs are not part of burden and are not included in the product price.

The administrative people are usually working for more than one plant or business. They may also be working on several different projects.

To try and incorporate these costs in a product or service is often difficult. The costs are usually allocated to several locations and projects.

The Cost Accountant or whoever is creating the budget, will receive these costs from Management. She will then simply add this amount to the budget.

Each month these costs are recorded in the general ledger. The costs are also reported on the income statement. When the account structure of the accounting reporting software is initially set up, administrative costs should be segregated by assigning a range of account numbers for these costs.

In many companies, these costs are kept as private as possible. Most professionals in this group are highly compensated and receive many benefits that the rest of the workforce does not. These include large salaries, car allowances, country club memberships, expense accounts, etc. Many public companies must report these costs to the public though. A company's annual report can be interesting reading.

Like any other costs, management will usually review the budgeted admin costs for the year and also review the actual costs to the budgeted costs. In slow economic times, even these costs are certain to be reduced.