Operating Costs

An organization’s daily maintenance and management are accompanied by operating costs. Direct costs of goods sold (COGS) and other operational costs, also known as selling, general, and administrative (SG&A), are included in operating costs. These costs include rent, wages, and other overhead expenditures, as well as prices for raw materials and maintenance. Non-operating finance costs like interest, investments, and currency exchange are not included in operational costs.

Operating income is calculated on a company’s income statement by subtracting operating costs from revenue. Companies must keep track of both running expenditures and expenses related to non-operating activities, such as interest payments on loans. Because the two expenses are recorded differently in a company’s records, analysts may assess how the costs are related to its revenue-generating operations and if it can be handled more effectively.