A:

The primary types of operating expenses include payments that are related to compensation, sales and marketing, office supplies and non-facility fees.

An operating expense tied to compensation could include pension plan contributions, sales commissions or benefits, and pay for non-production employees. Sales and marketing departments often accrue different operating expenses such as costs for advertising, sales materials, travel, direct mailings and entertainment provided for clients and customers. Different operating expenses accrued for a typical office may include accounting expenditures, insurance costs, payments for property taxes and utilities, repair and rental fees for non-production facilities, office supplies and legal fees.

Some companies also include the costs of goods sold (COGS) as an operating expense. For example, direct labor or rent for production facilities may be classified as different types of operating expenses. In addition, compensation and benefits for production personnel and direct labor may be classified under operating expenses for accounting purposes. When considering the COGS, a company may consider the cost of direct materials, repairs of facilities and equipment and property taxes on production facilities as an expenditure classified as an operating expense.

The primary difference between an operating expense and an administrative expense is that types of operating expenses are related to the departments that produce products and services whereas administrative expenses are more general and not necessarily specific to a department within the company. For example, employees such as receptionists or secretaries may be compensated as part of administrative expenses. Postage, telephone bills and general office supplies shared by all departments also typically are not classified as operating expenses. Instead, these general expenses are considered administrative costs.

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