Further, it also helps you to know if you can run your business efficiently or not.įor instance, you can decide whether to hire more employees. This helps you in analyzing how each of the costs is linked to your business’s revenue-generating activities. It is important to keep a track of your business’s operating costs and non-operating costs. This is because these are not directly linked to the production of goods or services.Īccordingly, operating expenses include Selling, General, and Administrative Expenses. Therefore, operating expenses do not form part of the Cost of Sales. These costs are not accounted for in the COGS. On the other hand, operating expenses are the costs that you incur to conduct normal business operations. Accordingly, COGS includes the following expenses: ![]() ![]() ![]() It includes all the expenses that are directly associated with the production of goods or services. Operating Cost = Cost of Goods Sold ( COGS ) + Operating Expenses (OPEX)ĬOGS is also known as Cost of Sales. Then, use the following operating cost formula: To determine the operating cost, go through your income statement for a given accounting period.
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