operational expense
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An operating expense, operating expenditure, operational expense, operational expenditure or opex is an ongoing cost for running a product, business, or system . Its counterpart, a
capital expenditure Capital expenditure or capital expense (capex or CAPEX) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure ...
(capex), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a
photocopier A photocopier (also called copier or copy machine, and formerly Xerox machine, the generic trademark) is a machine that makes copies of documents and other visual images onto paper or plastic film quickly and cheaply. Most modern photocopiers u ...
involves capex, and the annual paper,
toner Toner is a powder mixture used in laser printer Laser printing is an electrostatic digital printing process. It produces high-quality text and graphics (and moderate-quality photographs) by repeatedly passing a laser beam back and forth ove ...
, power and maintenance costs represents opex. For larger systems like businesses, opex may also include the cost of workers and facility expenses such as rent and utilities.


Overview

In
business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...
, an operating expense is a day-to-day
expense An expense is an item requiring an outflow of money, or any form of Wealth, fortune in general, to another person or group as payment for an item, service, or other category of costs. For a leasehold estate, tenant, renting, rent is an expense. Fo ...
such as
sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. The seller, or the provider of the goods or services, completes a sale in ...
and
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative Assistant, traditionally known as a Secretary, or also known as an administrative officer, admini ...
, or research & development, as opposed to production, costs, and pricing. In short, this is the
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 primary functions which distinguish money are as ...
the business spends in order to turn
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Stock management, Inventory management is a discipline primarily about s ...
into
throughput Network throughput (or just throughput, when in context) refers to the rate of message delivery over a communication channel, such as Ethernet Ethernet () is a family of wired computer networking technologies commonly used in local area ...
. On an
income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year. In
throughput accounting Throughput accounting (TA) is a principle-based and simplified management accounting In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of the ...
, the
cost accounting Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, al ...
aspect of the theory of constraints (TOC), operating expense is the
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 primary functions which distinguish money are as ...
spent turning
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Stock management, Inventory management is a discipline primarily about s ...
into
throughput Network throughput (or just throughput, when in context) refers to the rate of message delivery over a communication channel, such as Ethernet Ethernet () is a family of wired computer networking technologies commonly used in local area ...
.Goldratt, E. M., & Cox, J. "The Goal: A Process of Ongoing Improvement" (Rev. ed.). (1986)., p. 61. In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a
fixed cost In accounting and economics, 'fixed costs', also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be recurring, such as interest or re ...
, including labour (unless there is a regular and significant chance that workers will not work a full-time week when they report on their first day). In a
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
context, operating expenses include costs associated with the operation and maintenance of an income-producing property. Operating expenses include: * accounting expenses *
license A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...
fees * maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care * advertising * office expenses * supplies * attorney fees and legal fees * utilities, such as telephone * insurance * property management, including a resident manager * property taxes * travel and vehicle expenses :Travel expenses are defined as those incurred in the event of travel required for professional purposes. ::For this purpose, “travel” is defined as the simultaneous absence from the
residence A residence is a place (normally a building) used as a home or dwelling, where people reside. Residence may more specifically refer to: * Domicile (law), a legal term for residence * Habitual residence, a civil law term dealing with the status ...
and from the regular place of
employment Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a co ...
. It is prompted by professional or company purposes and likely does not concern the traveler’s private life, or concerns it only to a small degree. Travel expenses include travel costs and fares, accommodation expenses, and so-called additional expenses for
meal A meal is an eating occasion that takes place at a certain time and includes consumption of food. The names used for specific meals in English (language), English vary, depending on the speaker's culture, the time of day, or the size of the mea ...
s. * leasing commissions * salary and wages


See also

*
Capital expenditure Capital expenditure or capital expense (capex or CAPEX) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure ...
(capex) *
Total cost of ownership Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even eco ...
(TCO) *
Capital budgeting Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
*
Freight expense In accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, whi ...
*
Operating cost Operating costs or operational costs, are the expenses 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 main ...
*
Overhead (business) In business, overhead or overhead expense refers to an ongoing expense of operating a business. Overheads are the expenditure which cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as ...


References


Further reading

* Harry I. Wolk, James L. Dodd, Michael G. Tearney. ''Accounting Theory: Conceptual Issues in a Political and Economic Environment'' (2004). . * Angelico A. Groppelli, Ehsan Nikbakht. ''Finance'' (2000). . * Barry J. Epstein, Eva K. Jermakowicz. ''Interpretation and Application of International Financial Reporting Standards'' (2007). . * Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello. ''Financial & Managerial Accounting'' (2008). .1 * Goldratt, E. M., & Cox, J. (1986). The Goal: A Process of Ongoing Improvement (Rev. ed.). . {{DEFAULTSORT:Operating Expense Expense