Operating Expense Examples Top 15 Most Common Examples Of Opex

Operating Expense Examples

In simple terms, OpexOpexOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more refers to the money spent on running the company’s business operations 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 total of expenses excluding the cost of goods sold, interest, taxes, and non-cash expensesNon-cash ExpensesNon-cash expenses are those expenses recorded in the firm’s income statement for the period under consideration; such costs are not paid or dealt with in cash by the firm. It involves expenses such as depreciation.read more like depreciation and amortization to the income statement.

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Below are the top 15 most examples of operating expenses (OPEX) –

Salaries paid to the EmployeesRentInsuranceUtility BillsOffice Admin ExpenseRepairs & MaintenancePrinting & StationeryProperty TaxesDirect Material CostDirect Material CostDirect Material Cost is the total cost incurred by the company in purchasing the raw material along with the cost of other components including packaging, freight and storage costs, taxes, etc. that are related directly to the manufacturing and production of various products of the company.read moreAdvertising CostEntertainment CostTravel CostConveyanceTelephone ExpenseSelling ExpensesSelling ExpensesThe amount of money spent by the sales department on selling a product is referred to as selling expenses. This includes expenses incurred on advertising, distribution and marketing. Because it is indirectly related to the production and delivery of goods and services, it is classified as an indirect cost.read more

Let us discuss each one of them in a bit more detail.

Most Common Examples of Operating Expense (OPEX)

Compensation based operating expenses (OPEX)

Salaries – Salaries are paid to the company’s employees and are 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 by the company.

These are the day-to-day expenses of the company to run the business operations smoothly and include the below mentioned:

Rent 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 companyFixed Cost For The CompanyFixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. It is the type of cost which is not dependent on the business activity.read more.Insurance: It refers to the amount paid to the Insurance company for the group insuranceGroup InsuranceGroup Insurance is a type of insurance which covers a group of people who are related to each other by some defined criteria i.e., Members of Society or any professional association, employees of an entity, employees working under the same employer etc.read more 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 cashPetty CashPetty cash means the small amount that is allocated for the purpose of day to day operations. It is unreasonable to issue a check for such small expenses and for managing the same custodians are appointed by the company.read more, conveyance, transport, cleaning charges, etc.Repairs & Maintenance: It refers to the periodic maintenance of the company’s fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more, plant & machinery, and furniture and fixtures 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 and using the property for commercial use.Direct Material Cost: It refers to the purchases of direct materials required to make the product and sell the same to the end-user. Since it’s a high direct cost of 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 expand its existing operations. It includes the following :

Advertising Cost: Cost incurredCost IncurredIncurred Cost refers to an expense that a Company needs to pay in exchange for the usage of a service, product, or asset. This might include direct, indirect, production, operating, & distribution charges incurred for business operations. read more 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 company’s top executives about the business requirements.Conveyance refers to the reimbursementReimbursementReimbursement refers to the monetary compensation made by companies, organizations, or governments to employees, customers, taxpayers, or other entities for incurring expenses out of their pocket.read more 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 company’s product to the end-users via various means. It may include printing booklets and 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 company’s financial position and comparing them with peers. A low operating expense ratioOperating Expense RatioOperating Expense Ratio is the ratio between the cost of operation to the net revenue and is commonly used to evaluate real estate properties. A higher Operating Expense ratio indicates that the company’s operating expenses are higher than its property income, which acts as a deterrent. A lower operating expense ratio implies lower operating costs, which is preferred and investment-friendly.read more gives the company the strength to expand and grow in the future.

In the company’s initial stages, the opex will be very high since it has just started its operations by spending heavily on infrastructure, human capital, and marketing expenses. Gradually this ratio starts declining when the company can 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 closed down, and those with lower opex costs continue.