Operating Cost

Posted in Finance, Accounting and Economics Terms, Total Reads: 317
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Definition: Operating Cost

All the expenses carried out by a business to run its business. The operating costs are broadly divided as fixed costs and variable costs.


Explanation:

Operating costs are those costs that a business spends on resources to maintain its existence. There are broadly two categories:

1. Fixed costs: these costs remain the same whether a business operates or not. Thus even if business in not operating they will have to bear the fixed costs. Example is rent of a building.

2. Variable costs: these costs vary in proportion to the business operating activity. Thus when business is not operating the variable costs would be zero. Whereas as the business activity increases the variable costs increases. The costs could be directly proportional or some part could be directly proportional or some not variable. Example telephone bills, power bill, raw material cost etc.


Operating costs does not include costs incurred for design and implementation in a new process.

 

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