Operating Cost

Analyzing and Monitoring Operating Costs for Businesses

Operating costs are essential to any business, large or small. They are the direct costs associated with running and maintaining an organization’s normal operations. Operating costs are a key element of the cost of goods sold (COGS) and other operating expenses such as selling, general, and administrative (SG&A) expenses. Therefore, they are one of the main components of the everyday running of a business.

The cost of goods sold (COGS) is the direct costs required to produce and deliver a product or service to the customer. This includes direct costs for labor, materials, and other direct costs associated with the product itself. Examples of COGS includes, materials and supplies, direct labor and production facility costs, direct packaging materials and production costs, and freight out costs.

Other operating costs, referred to as SG&A expenses, are those operational costs associated with the management of the company’s normal business activities, such as administration and marketing. Examples of SG&A expenses include rent, utilities, stationery, salaries and wages, advertising, marketing, professional fees, travel and entertainment expenses, and research and development costs.

Analyzing operating costs is essential for any business as it can provide valuable insight and information about a business’s performance. Operating costs can be found from a company’s income statement. The income statement shows the company’s total operating costs, gross profit, net income, and other related figures. By looking at the income statement, a business can assess its operating costs, measure against its income and profits, and make adjustments to improve its efficiency and profitability.

Operating costs are essential for the running of any business. They should be regularly monitored and analyzed in order to ensure that the business is running as efficiently and profitably as possible. By tracking and analyzing these costs, a business can identify areas of improvement and make necessary adjustments to improve the overall performance of the company.

Desc: Understanding and analyzing operating costs for businesses can provide valuable insight for improving the performance and profitability of the company. This article explains why monitoring operating costs is essential to running a successful business, and how these costs can be assessed and managed from the income statement.