Operating Expense Examples
The examples of the Operating expenses are legal fees, rent, depreciation, office equipment, and supplies, Accounting expenses, insurance, repairs and maintenance expenses, utility expenses like electricity, water, etc, telephone and internet expenses, property taxes, payroll tax expenses, pensions, advertisement expenses, entertainment costs, travel costs, marketing, commissions, direct mailing expenses, bank charges and many more.
In simple terms, Opex refers to the money spent on running the business operations of the company smoothly. Generally referred to as “OPEX Cost,” and is the primary concern for the management of the company to reduce the same without affecting the product quality and to stay ahead of the competitors. Operating Expense is the Sum total of all the expenses excluding the cost of goods sold, interest, taxes, and non-cash expenses like depreciation and amortization to the income statement.
Below are the top 15 most examples of operating expenses (OPEX) –
- Salaries paid to the Employees
- Rent
- Insurance
- Utility Bills
- Office Admin Expense
- Repairs & Maintenance
- Printing & Stationery
- Property Taxes
- Direct Material Cost
- Advertising Cost
- Entertainment Cost
- Travel Cost
- Conveyance
- Telephone Expense
- Selling Expenses
Let us discuss each one of them in a bit more detail.
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Most Common Examples of Operating Expense (OPEX)
Compensation based operating expenses (OPEX)
- Salaries – Salaries paid to the employees of the company and is one of the most critical expenses for any company being fixed in nature. It includes gratuity, pension, pf, etc.
- House Rent Allowance: It refers to the allowance given by the employer to the employee to stay in a house on rent. It forms part of the CTC to the employee and can be claimed from the company.
Office Related OPEX
These are the day to day expenses of the company to run the business operations smoothly and includes the below mentioned:
- Rent: It refers to the rentals paid to the landlord for using the premises for business use. Generally incurred every month and is a fixed cost for the company.
- Insurance: It refers to the amount paid to the Insurance company for the group insurance of the employees for any kind of medical emergency. Since this expense is incurred for the benefit of the employees, it’s an operating expense for the company to keep them motivated by providing safety and security.
- Utility Bills: It refers to electricity, internet charges, mobile bills, etc. paid. It is a monthly expense and normally fixed in nature.
- Office Admin Exp: It refers to the daily admin expense of the premises like stationary, petty cash, conveyance, transport, cleaning charges, etc.
- Repairs & Maintenance: It refers to the periodic maintenance of the fixed assets, plant & machinery, and furniture and fixtures of the company to keep the same in good condition.
- Printing & Stationery: This is a routine exp incurred daily in the office premises on printing of documents etc.
- Property Taxes: It refers to expenses paid to the authorities for owning the property and using it for commercial use.
- Direct Material Cost: It refers to the purchases of direct materials required to make the product and finally sell the same to the end-user. Since its a significant direct cost in the product, the company cannot avoid it. It has to be paid on an ongoing basis.
Sales & Marketing Expenses (OPEX)n
It refers to the expenses incurred to generate business for the company and to expand its existing operations. It includes the following :
- Advertising Cost: Cost incurred to market the company’s product on social media or tv channels. It is an operating cost for the company to stay in business and compete with the peer groups efficiently.
- Entertainment Cost: Cost incurred for the welfare of the employees to keep them entertained;
- Travel Cost: Cost incurred to travel from one place to another for the top executives of the company with regard to the business requirements.
- Conveyance: It refers to the reimbursement paid to the staff for day to day office travel.
- Telephone Exp: It refers to the expenses paid to the service provider for the use of the internet and mobile phones of the employees in the company.
- Selling Expenses: This refers to the cost incurred for selling the product of the company to the end-users via various means. It may include printing of booklets, arranging seminars or events. It will make people aware of the benefits of the product.
Conclusion
Operating expenses form a major component for analyzing the financial position of the company and compare them with peers. A low operating expense ratio gives the company the strength to expand and grow in the future.
- In the initial stages of the company, the opex will be very high since the company has just started its operations by spending heavily on infrastructure, human capital, and marketing expenses. Gradually this ratio starts declining when the company is able to generate revenues on a larger scale.
- However, in the case of a liquidity crisis in the company, the opex plays a vital role in decision making. The departments with higher opex costs are close down, and those with lower opex costs continue.
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