Operating expenses are those expenditures that a business incurs to engage in any activities not directly associated with the production of goods or services (see an alternative definition at the bottom).
These expenditures are the same as selling, general and administrative expenses. Examples of operating expenses include the following:
Examples of compensation-related operating expenses
- Compensation for non-production employees
- Sales commissions (though this could be interpreted as a variable cost that is therefore part of the cost of goods sold)
- Benefits for non-production employees
- Pension plan contributions for non-production employees
Examples of office-related operating expenses
- Accounting expenditures
- Depreciation of fixed assets assigned to non-production areas
- Insurance costs
- Legal fees
- Office supplies
- Property taxes
- Rent costs for non-production facilities
- Repair costs for non-production facilities
- Utility costs
Examples of sales and marketing-related operating expenses
- Advertising costs
- Direct mailing costs
- Entertainment costs
- Sales material costs (such as brochures)
- Travel costs
Note: Finance-related costs may be excluded from the operating expenses definition, on the grounds that they are not generated by the ongoing operations of a business. If these costs were to be included, examples would be auditor fees, bank fees, debt placement costs, and interest expense.
The definition of operating expenses is sometimes expanded to include the cost of goods sold, thereby encompassing every operational aspect of a business. If so, the following costs are also examples of operating expenses:
- Freight in and freight out
- Direct materials
- Direct labor
- Rent of production facilities
- Compensation for production personnel
- Benefits for production personnel
- Depreciation of production equipment and facilities
- Repair of production equipment and facilities
- Utility costs for production facilities
- Property taxes on production facilities
