12/8/2023 0 Comments Operating budgetThough, your business profits increase in the short-term if you choose to reduce specific operating costs. Reducing your operating costs to a greater extent can negatively impact your business productivity and overall profit. However, you must note an important thing here. This is because it seems an easy and approachable way of increasing your business profits. Typically, you first resort to cutting down your business operating cost. You can either increase your business revenue or reduce your operating cost. These earnings depend on the amount of business revenue generated and expenses incurred to operate the business.Īccordingly, there can be two possibilities to increase your business earnings. You will always pursue business operations to maximize business earnings. But suffer loss in the long-term if you lay off too many employees. This is possible only if you know how much your business has spent on staff salaries. 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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