Operating Expense Formula | Calculator (Examples with Excel Template)

Operating Expense Formula (Table of Contents)

What is the Operating Expense Formula?

The term “ operating expense ” refers to all the run costs incurred during the normal course of the business in a given period of time, which is not immediately assignable to the production process. In other words, operating expense is the aggregate of all the expenses early than the monetary value of goods sold ( COGS ), and it chiefly includes rental expense, market cost, payroll expense, etc. thus, it is besides known as an operational expending or “ Opex. ”

Reading: Operating Expense Formula | Calculator (Examples with Excel Template)

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The formula for the operate expense can be simply expressed as sum of respective betray, general and administrative ( SG & A ) expenses like office staff salaries, sales commissions, promotional & ad cost, rental expense, utilities, etc. mathematically, it is represented as ,
Operating Expense = Salaries + Sales Commissions + Promotional & Advertising Cost + Rental Expense + Utilities
On the other hand, the formula for manoeuver expenses can besides be expressed as tax income minus operating income ( EBIT ) subtraction COGS. mathematically, it is represented as ,
Operating Expense = Revenue – Operating Income – COGS

Examples of Operating Expense Formula (With Excel Template)

Let ’ s take an example to understand the calculation of Operating Expense in a better manner .
You can download this operate Expense Formula Excel Template here – Operating Expense Formula Excel Template

Operating Expense Formula – Example #1

Let us take the example of a manufacturing company to illustrate the computation of operating expenses. According to the latest annual report, the following information is available from the income statement of the company:

Solution:
Calculate the manoeuver expense of the company based on the above information. operational expense is calculated using the formula given below
Operating Expense = Sales Commission + Advertising Expense + Salaries + Depreciation + Rent + Utilities

Operating Expense = $1.20 million + $2.00 million + $1.00 million + $0.75 million + $0.50 million + $0.30 million
Operating Expense = $5.75 million

therefore, the operating expense of the company during the given period was $ 5.75 million .

Operating Expense Formula – Example #2

Let us take the example of a company to illustrate the computation of operating expenses using the alternate approach. The following financial information is available about the company:

Solution:
COGS is calculated using the formula given below
COGS = Direct Labor + Raw Material Cost + Manufacturing Overhead

COGS = $5.25 million + $9.75 million + $1.25 million
COGS = $16.25 million

Operating Income is calculated using the rule given below
Operating Income (EBIT) = Net Income + Interest Expense + Taxes

Operating Income = $6.00 million + $2.00 million + $2.50 million
Operating Income = $10.50 million

function expense is calculated using the formula given below
Operating Expense = Revenue – Operating Income – COGS

Operating Expense = $40.00 million – $10.50 million – $16.25 million
Operating Expense = $13.25 million

therefore, the operate expense of the caller during the given period was $ 13.25 million .

Operating Expense Formula – Example #3

Let us take the example of Apple Inc. to illustrate the computation of operating expenses using both approaches. According to an income statement for 2018, the following information is available:

Solution:
First Approach
operate expense is calculated using the formula given below
Operating Expense = Research and Development Expense + Selling, General and Administrative Expense

Operating Expense = $14,236 million + $16,705 million
Operating Expense = $30,941 million

Alternate Approach
operate expense is calculated using the formula given below
Operating Expense = Revenue – Operating Income – Cost of Sales

Operating Expense = $265,595 million – $70,898 million – $163,756 million
Operating Expense = $30,941 million

consequently, Apple Inc. ’ s operating expense for the year 2018 was $ 30,941 million .

Source Link: Apple Inc. Balance Sheet

Explanation

The recipe for the engage expense can be derived by using the following steps :
Step 1: first, determine the COGS of the subject company during the given period. COGS is the aggregate of monetary value of production that is immediately assignable to the product action, which chiefly includes raw material cost, steer labor monetary value, and manufacturing overhead .
COGS = Raw Material Cost + Direct Labor Cost + Manufacturing Overhead
Step 2: Next, determine the operating income of the company for the time period from the income statement .
Step 3: Next, determine the tax income achieved by the company for the period. It is normally the inaugural line detail in the income instruction .
Step 4: last, the convention for the operate on expenses can be derived by deducting COGS ( step 1 ) and operating income ( step 2 ) from its tax income ( step 3 ) as shown below .
Operating Expense = Revenue – Operating Income – COGS

Relevance and Use of Operating Expense Formula

It is important to understand the concept of operate expenses because it is very crucial in the appraisal of the overall profitableness of a company. Given that these expenses are periodic in nature and not directly related to the output level, companies normally intend to control these expenses in order to improve its profitableness. In fact, operating expenses can be used for decision name in regulate to build competitive advantage, the result of which can be used in the performance assessment of the management team as it reflects their competence and ability to take initiatives .