Operating Cost – Definition, Explanation, with Examples

Operating Cost Definition

The operating cost is referred to as the ongoing expenditures incurred with the daily business work. The operating cost usually includes the cost of goods sold (COGS) and other operating expenses (such as administration and distribution costs).

The Formula of Operating Cost (How to Calculate Operating Cost)

In the Statement of Profit and Loss (P&L/Income Statement), the Revenue figure will be deducted from the Operating Cost (Cost of Sales + Operating Expenses) to get the Operating Profit Figure.

The following is the Formula of the Operating Cost

Operating Cost = Cost of Goods Sold + Operating Expenses

Understanding Operating Cost with Examples

Operating costs are the business expenses incurred in the day-to-day operations.

As an example, the business has to spend funds on an asset purchase, R&D, and rental expenses before starting operations of the business. These costs are not considered operating costs. Operating costs are paid for through revenue generated from sales.

Also, operating costs do not include non-operational-related expenditures like investments, loan interests, or foreign currency conversions.

Operating Cost Examples

Following are some of the examples of operating costs,

  • Direct Material Expenses
  • Salaries and Wages
  • Rental Expenses of Production Facility
  • Repair Costs of Equipment
  • Utility Costs
  • Maintenance Expenses
  • Administration Cost
  • Distribution Cost

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