Question

Barry Company manufactures coats. The company accounting records during February show: Factory utilities - $950: Direct materials used in production - 521.650: Direct materials purchased during the month $23,000: Direct labor costs - 515.210: Wages paid to workers providing direct labor - $16,100: Depreciation on factory equipment - 51.250: Insurance covering factory facilities - $1,100; Marketing expenses - 54,700: Factory supervisor salary - $3,500: Indirect manufacturing materials used - $1.090: Insurance covering administrative facilities - $2.100; Depreciation on administrative office furnishings - $5.500: Corporate executive salaries - $15,000. What are the total amount of operating expenses incurred during February?

Answer 1

Operating expenses are expenses a business incurs in order to keep it running, such as staff wages and office supplies. Operating expenses do not include cost of goods sold (materials, direct labor, manufacturing overhead) or capital expenditures (larger expenses such as buildings or machines).

Operating expenses include,

• Payroll for staff (excluding labor for manufacturing)
• Insurance
• License fees
• Rent
• Research
• Marketing (including for social channels like Facebook)
• Accounting fees
• Building maintenance and repairs
• Office supplies
• Utilities
• Attorney fees
• Property taxes on real estate
• Vehicle expenses
• Travel expenses

Cost of goods sold is not included in the operating expense, ie,

• Direct material
• Direct labour
• Manufacturing overheads

The specific costs for hiring labor to produce a product is calculated separately, under cost of goods sold, and are not operating expenses.

Depriciation is a non operating expense.

Therefore, Here operating expense for the month February = Marketing Expenses + Insurance covering administrative facilities + Corporate executive salaries.

= $4700 +$2100 + $15000

Operating expense for the month February = $21800