Examples of operating expenses
/What are Operating Expenses?
Operating expenses are those expenditures that a business incurs to engage in activities not directly associated with the production of goods or services. These expenditures are the same as selling, general and administrative expenses. Examples of operating expenses include the following:
Examples of Compensation-Related Operating Expenses
Compensation and related payroll tax expenses for non-production employees
Sales commissions (though this could be interpreted as a variable cost that is therefore part of the cost of goods sold)
Benefits for non-production employees
Pension plan contributions for non-production employees
Examples of Office-Related Operating Expenses
Accounting expenditures
Depreciation of fixed assets assigned to non-production areas
Insurance costs
Legal fees
Office supplies
Property taxes
Rent costs for non-production facilities
Repair costs for non-production facilities
Utility costs
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Examples of Sales and Marketing-Related Operating Expenses
Advertising costs. This is the cost of all types of advertising, including Internet ads, print ads, and billboards.
Direct mailing costs. This is the cost of the materials and postage associated with mailings to prospective customers.
Entertainment costs. This is the cost to entertain both current and prospective customers.
Sales material costs. This includes the capitalized cost of sales materials that are handed out. Alternatively, the cost to produce these materials may be charged to expense as incurred.
Travel costs. This includes the costs incurred to travel to customers, trade shows, and other events that are intended to generate sales.
Note: Finance-related costs may be excluded from the operating expenses definition, on the grounds that they are not generated by the ongoing operations of a business. If these costs were to be included, examples would include auditor fees, bank fees, debt placement costs, and interest expense.
Examples of Cost of Goods Operating Expenses
The definition of operating expenses is sometimes expanded to include the cost of goods sold, thereby encompassing every operational aspect of a business. If so, the following costs are also examples of operating expenses:
Freight in and freight out. These are the costs incurred to have raw materials and merchandise brought into a business, as well as the costs incurred to ship finished goods to customers.
Direct materials. These are the costs of the materials included in any finished goods sold to customers. It does not include the cost of materials stored within items that are still classified as inventory, since these items have not yet been sold.
Direct labor. This is the cost of the production labor required to produce goods that have been sold to customers. It does not include the cost of labor stored in finished goods that are still in stock, since they have not yet been sold.
Rent of production facilities. This is the cost of not only production facilities, but also the cost to lease any production equipment within those facilities. This cost is allocated to the units produced, and charged to expense when they are sold.
Compensation for production personnel. There are many production personnel who are indirectly involved in the production process, including materials handling, materials management, and quality control. Their costs are included in factory overhead, which is allocated to the units produced.
Benefits for production personnel. This is the benefit costs granted to people involved in the production process, which are included in factory overhead and allocated to the units produced.
Depreciation of production equipment and facilities. The depreciation associated with production equipment and facilities is included in factory overhead, which is then allocated to the number of units produced.
Repair of production equipment and facilities. The repair of production equipment and facilities is included in factory overhead, which is then allocated to the number of units produced.
Utility costs for production facilities. The cost of the utilities for production facilities is included in factory overhead, which is then allocated to the number of units produced.
Property taxes on production facilities. The cost of the property taxes on production facilities is included in factory overhead, which is then allocated to the number of units produced.