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Understanding Operating Costs and Your Goals Need to Calculate Them

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Understand Operational Costs and the Purpose of Calculating Them

Companies incur operational costs to carry out all business activities within a certain period of time, generally for one year. But before you can calculate operational costs correctly, you need to understand what operational costs are, the difference between operational and non-operational costs, and your goals for calculating operational costs. Immediately, let’s read the full explanation in this article.

What is Operational Cost?

The definition of operating costs is the number of funds issued by the company to run the company’s various businesses in a certain period, for example, within one year.

The purpose of calculating operational costs is to manage all the resources the company has more effectively for business continuity and profit. Some examples of operational costs include:

  • Purchase production equipment, rental, electricity, and water costs.
  • Employee salary costs, overtime costs, consumption costs.
  • Insurance, purchase of raw materials, packaging costs.
  • Shipping costs, marketing costs, fuel costs, consumption costs, and so on.

Differences between Operational and Non-Operational Costs

To calculate operational costs to be precise and accurate, you must also be able to distinguish between operational and non-operational costs.

The difference between the two lies in whether there is a relationship between costs and the production process.

Well, because the explanation regarding operational costs has been above, we immediately discuss non-operational costs. The definition of non-operational costs is all expenses that affect the running of the business, but not directly.

Sometimes even the nominal is so tiny that it is neglected. This small nominal can be dangerous for the company’s finances if it occurs repeatedly.

Examples: inter-bank transfer fees, loan interest costs, rental costs for borrowing goods, and costs for losses on the sale of company assets. In addition, some of the following costs are also included in non-operational costs, such as currency differences, disaster repairs, losses, and so on

Benefits and Purpose of Calculating Operational Costs

Operational Cost Benefit

1. Planning a Budget

Calculating operational costs will help you plan the company’s financial budget, monitor the use of money, and monitor all business activities.

This is important, considering that the lower the operational costs, the healthier and more profitable the company’s finances will be.

The results of the evaluation of recording and calculating detailed operational costs will help design strategies and make a better budget for the next period/year.

2. Setting the Price

When making a budget plan, you also analyze the overall costs. Because operational costs also include production costs.

By knowing the total amount of funds going out for business operations, you can calculate a more accurate selling price, which is not detrimental to the company and is still within reach of consumers’ purchasing power.

3. Knowing Profit Loss

To determine whether the company is making a profit or experiencing a loss, you can calculate sales results (total business sales) minus operational costs. If the sales figure is still more significant, the company is profitable.

On the other hand, if the operational costs are more significant, the company will suffer losses. You can see all these calculations in detail in the income statement.

Knowing Profit Loss from Operational Costs

4. Plays an Important Role in Decision Making

Another goal of your need to calculate operational costs is to help you make the best decisions, especially those related to developing strategies for business development.

Operational costs will usually be the primary consideration when you need to add production machines or increase the number of employees.

Even the calculation of operational costs also needs to be considered when planning to hold a campaign or promotional activities, expand the market, and even add to the delivery fleet.

5. Considerations for Business Development

Every business owner certainly wants his business to grow and become bigger. You do, too, right?

So, you need to pay attention to how much the company spends every month on operational costs. Keep the operational costs within the benefits you can get. If this happens, the business will be easier to develop.

You already know what operational costs are and what you need to calculate them for. The operational cost calculations you do can be more detailed and accurate; let’s also understand the Components of Operational, Non-Operating Costs and Examples.

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