What Elements Should be Included in Operating Expense

What Elements Should be Included in Operating Expense

Operating Expense is not directly associated with production. Operaing Expense is incurred in carrying out the day to day activities of the business. In short, operating expense is the money that is used to operate the business. Operating expense is also known as operating expenditure, operational expense, operational expenditure or OPEX.

Operating expenses are reported in the profit and loss account ledger. Operating expenses are subtracted from the gross margin to get the operating profit. All selling, general and administrative expenses are reported as operating expenses in profit and loss.

Gross Margin                                                            ……………

Operating Expenses                                               ……………

Operating Profit                                                        ……………

Operating expense can be separated according to category.

General and Administrative expenses

  • Staff salaries & wages and benefits
  • Building rent
  • Consulting expenses
  • Corporate management salaries and benefits (such as for the chief executive officer and support staff)
  • Depreciation on office equipment
  • Insurance
  • Legal staff wages and benefits
  • Office supplies
  • Outside audit fees
  • Subscriptions
  • Utilities
  • Entertainment
  • Pension contribution
  • Repair & maintenance
  • Stationery expense
  • Property tax
  • Postage & telegram
  • Bonuses
  • Medical

Administrative expenses will be incurred even in the absence of any sale or selling activity and can vary business to business.

Selling Expense

  • Salesperson salaries and wages
  • Sales administrative staff salaries and wages
  • Commissions
  • Payroll taxes
  • Benefits
  • Travel and entertainment
  • Facility rent / showroom rent
  • Depreciation
  • Advertising
  • Promotional materials
  • Utilities
  • Other departmental administration costs
  • incentives

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