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Operating costs or operational costs, are the
expense Expenditure is an outflow of money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main function ...
s which are related to the operation of a business, or to the operation of a device, component, piece of equipment or facility. They are the cost of resources used by an organization just to maintain its existence. http://www.operatingcosts.com


Business operating costs

For a commercial enterprise, operating costs fall into three broad categories: *
fixed costs In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compa ...
, which are the same whether the operation is closed or running at 100% capacity. Fixed Costs include items such as the rent of the building. These generally have to be paid regardless of what state the business is in. It never changes * variable costs, which may increase depending on whether more production is done, and how it is done (producing 100 items of product might require 10 days of normal time or take 7 days if overtime is used. It may be more or less expensive to use overtime production depending on whether faster production means the product can be more profitable). Variable Costs include indirect overhead costs such as Cell Phone Services, Computer Supplies, Credit Card Processing, Electrical use, Express Mail, Janitorial Supplies, MRO, Office Products, Payroll Services, Telecom, Uniforms, Utilities, or Waste Disposal etc. *semi variable, the expenses necessary to keep the business in proper condition.


Business overhead costs

Overhead costs for a business are the cost of
resources Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified into renewable A renewable resource, also know ...
used by an
organization An organization, or organisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...

organization
just to maintain its existence. Overhead costs are usually measured in monetary terms, but non-monetary overhead is possible in the form of time required to accomplish tasks. Examples of overhead costs include: *payment of rent on the office space a business occupies *cost of electricity for the office lights *some office personnel wages Non-overhead costs are incremental such as the cost of raw materials used in the goods a business sells. Operating Cost is calculated by Cost of goods sold + Operating Expenses. Operating Expenses consist of : * Administrative and office expenses like rent, salaries, to staff, insurance, directors fees etc. * Selling and distribution expenses like advertisement, salaries of salesmen. It includes all operating cost such as salary, rent, stationery, furniture etc.


Equipment operating costs

In the case of a device, component, piece of equipment or facility (for the rest of this article, all of these items will be referred to in general as equipment), it is the regular, usual and customary recurring costs of operating the equipment. This does not include the
capital cost Capital costs are fixed, one-time expenseExpenditure is an outflow of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and ar ...
of constructing or purchasing the equipment (depending on whether it is made by the owner or was purchased as a constructed system). Operating costs are incurred by all equipment — unless the equipment has no cost to operate, requires no personnel or space and never wears out. In some cases, equipment may appear to have low or no operating cost because either the cost is not recognized or is being absorbed in whole or part by the cost of something else. Equipment operating costs may include: *
Salaries A salary is a form of payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wage A wage is the distribution from an employer Employment is a relationship between two parties ...
or
Wage A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where work is paid for, where one party, which may be a corporation, for profi ...

Wage
s of personnel *
Advertising Advertising is a marketing Marketing is the process of intentionally stimulating demand for and purchases of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emphasi ...

Advertising
* Raw materials * License or equivalent fees (such as Corporation yearly registration fees) imposed by a government * Real estate expenses, including **
Rent Rent may refer to: Economics *Renting Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or owned by another. A is when the pays a flat rental amount and the pays ...
or
Lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (the Lessor (leasing), ''lessor'') for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial o ...

Lease
payments **Office space rent **furniture and equipment **investment value of the funds used to purchase the land, if it is owned instead of rented or leased **property taxes and equivalent assessments **Operations taxes, such as fees assessed on transportation carriers for use of highways * Fuel costs such as power for operations, fuel for production * Public Utilities such as telephone service,
Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a ''internetworking, network of networks'' that consist ...

Internet
connectivity, etc. * Maintenance of equipment * Office supplies and consumables *
Insurance premium Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...
* Depreciation of equipment and eventual replacement costs (unless the facility has no moving parts it probably will wear out eventually) * Damage due to uninsured losses,
accident An accident is an unplanned event that sometimes has inconvenient or undesirable consequences, other times being inconsequential. The occurrence of such an event may or may not have unrecognized or unaddressed risks contributing to its cause. M ...

accident
,
sabotage Sabotage is a deliberate action aimed at weakening a polity A polity is an identifiable political entity—any group of people who have a collective identity, who are organized by some form of Institutionalisation, institutionalized social r ...
,
negligence Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort A tort, in common law In law, common law (also known as judicial ...

negligence
,
terrorism Terrorism, in its broadest sense, is the use of intentional violence to achieve political aims. The term is used in this regard primarily to refer to violence during peacetime Peace is a concept of societal friendship and harmony in the ...
and routine
wear and tear Wear and tear is damage Damage is any change Change or Changing may refer to: Alteration * Impermanence Impermanence, also known as the philosophical problem This is a list of the major unsolved problems in philosophy Philoso ...

wear and tear
. * Taxes on production or operation (such as subsidence fees imposed on oil wells) * Income taxes Some of these are not applicable in all instances. For example, *A solar panel placed on one's home for use in generating electric power generally has only capital costs; once it's running there are no personnel costs, utility costs or depreciation and it uses no extra land (that wasn't already part of the place where it is located) so it has no real operating costs; however there may need to be taken into account costs of replacement if damaged. *An automobile or any other item purchased for personal use has no salary cost because the owner does not charge themselves for operating the device. *An item which is
lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (the Lessor (leasing), ''lessor'') for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial o ...

lease
d may have some or all of these costs included as part o It might be questionable to assert that the cost of ten extra people on the sales force are an incremental cost or an overhead cost, since the wages for these people are both overhead and
incremental Increment or incremental may refer to: *Incrementalism, a theory (also used in politics as a synonym for gradualism) *Increment and decrement operators, the operators ++ and -- in computer programming *Incremental computing *Incremental backup, whi ...
. The staff needed to keep the shop operational are mostly considered overhead. *formula for operating cost = total cost* number of weeks


References

* Rituraj Shrivastava SP Gupta, Ajay Sharma, Satish Ahuja. ''Cost Accounting''. FK Publications. pg. 316 {{Authority control Business terms