Administrative expenses refer to the costs of operating a business that are not directly attributable to the production of goods or services. Administrative expenses are related to the organization as a whole as opposed to the individual departments.
Administrative expenses are necessary costs that are associated with the management, administrative, clerical, and general functions within an organization. Administrative expenses can take the form of such basic needs as rent of the building, the cost of utilities, or the salaries of employees that are not involved in the production of goods or supply of services.
These are the expenses which are incurred in controlling and directing an organization but cannot be directly identified with the marketing, financing or production operations. The salaries of executives cost of services (such as accounting, contracting, and industrial relations) are the examples of administrative expenses.
Administrative expenses usually include costs that offer a wide benefit to the organization. The benefits of these expenses transcend departmental lines and make it possible for the many necessary functions to successfully take place.
One of the most common examples of administrative expenses is the cost of utilities. Charges for heating, cooling, power, and water are all usually classified as administrative expenses. The costs for internet, landline and mobile telephone services are also included in these expenses.
The cost of leasing or renting space for the operations of the organization is also a common example of administrative expenses. This can include rental cost of a suite of offices in an office building, or the rental of manufacturing plant. In some cases it might be successfully argued that the rental cost of production facility should be attributed to the production costs of goods.
Salaries of certain employees can also be included in the administrative expenses. The salaries of managers and general administrators, who are involved many different areas of the operations, can be included in administrative expenses. The directors’ remuneration and salaries of senior executives can also be included.