Operating costs are what is known as the actual cost of doing business. They are what are necessary in order for a company to maintain their existence and productivity. They include salaries paid to employees, utility bills, rent, and supplies needed for business operations. Operating cost accounting involves the recording of these costs and the use of various methods to record, classify and compare them.
Definition of Operating Cost
- The operating costs of a business include salaries paid to employees, wages and tips paid to employers, costs of doing business such as rent, utilities, fixtures and equipment, advertising, and marketing.
- Operating costs consist of salaries and wages of workers, building maintenance and other expenditures required for the smooth operation of an enterprise.
Operating costs are different from capital expenses because operating expenses include all the expenses that are incurred in the process of production of a product, such as expenses involved in getting raw materials, tools and equipment, manufacturing and other processing expenses and the cost of advertising and marketing the product.
They also include the cost of employing people to perform certain tasks involved in production of the product and other activities. These operating costs directly affect the output of the enterprise.
In an effort to save money, many companies try to keep their overhead as low as possible. One of the best ways to do this is to control what is operating. This means identifying all of the regular expenses that are required in running the business. These expenses include office supplies, gas, electricity, payroll taxes, repairs and software. The cost of operating can vary greatly depending on the type of business and the type of product being sold.
The first step in operating cost control is to develop accurate costing procedures. A large part of what is operating cost is controlling the number of employees employed in a given department. The number of employees being used will depend on what services the employees provide. If the services offered are varied then the number of employees needed will change accordingly. It is important to have accurate costing procedures so that correct employee information is recorded and used in the budgeting process.
The second step in what is operating cost control is the identification of each service or product being sold. The price of each item should be compared to its competitor’s prices. This allows for accurate comparison of the goods or services being offered with other companies. Price comparison allows a company to determine what is operating cost.
The next thing that needs to be done when what is operating cost control is developing a marketing plan. The marketing plan discusses what services or products are available and what price would charge for those items. The marketing plan is the mirror image of what is operating cost because it controls what is operating costs.
One of the most important questions to ask when what is operating cost control is what is operating profit. Profit is the difference between actual costs versus potential profits. Potential profits depend on the amount of activity a company is willing to invest into that particular activity. A company cannot spend all their money on advertising if they do not have enough money coming in to pay for the advertisements.
Some managers believe what is operating cost should also include what is inventory. The cost of purchasing raw materials and equipment should be included in what is operating cost. Once all the costs of production are included in what is operating cost then what is operating cost becomes primarily just a matter of comparing the cost of doing business to what is generating profits. Some companies use what is operating cost as a guideline when making their decisions about what they should charge for certain products and services.
What is operating cost has changed so much over the years. It was once a very simplistic concept that could be easily understood. Now, it takes some knowledge of statistics, cost accounting, marketing, and production numbers. If you are a manager who needs to use what is operating cost to make your company successful, then you need to take statistics, information management, economics, and marketing course.
In essence what is operating cost is the cost of doing business divided by the amount of profit generated. Many managers are not fully aware of what is operating cost. Even though most managers spend the majority of their time making cost savings through cutting costs, many managers do not fully understand what is operating cost. It is very important for them to learn what is operating cost if they want to reduce their budget cost while at the same time increasing the company profits.
Most managers feel what is operating cost is a fixed cost. It does not vary because there is no change in the total cost of doing business. To a manager what is operating cost is nothing more than a cost that cannot be changed. It is what it is because it has been that way for years. To change what is operating cost is to change the cost of doing business and make adjustments to increase profit.
What is operating cost can affect all areas of your business. It can affect your advertising, where you purchase supplies, how much you pay your employees and much more. If you have more money saved then you are in a better position to invest and grow your business. If you are able to reduce expenses then you will have more profit in the end. To reduce what is operating cost, you need to determine what is operating cost, know what it is and eliminate it.