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Operating Expense Examples

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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.

Video on Operating Expense Ratio Formula

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 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 company's fixed assets, 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 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 company's top executives about the business requirements.
  • Conveyance 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 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 ratio 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.