Question

Which of the following is an operating expense ?

• A. Rent
• B. Wages
• C. Advertising expenses
• D. All of these

Hint:

To identify an operating expense, ask: "Is this a cost of running the business, rather than a cost of directly making the product?" Costs like rent, salaries, marketing, and utilities are classic examples of OPEX.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks to identify which of the given items are classified as operating expenses.
Step 2: Key Concept:
Operating Expenses (OPEX) are the costs incurred by a business in its normal day-to-day operations to generate revenue. They are not directly tied to the production of a specific good or service (unlike Cost of Goods Sold - COGS). They are often categorized as Selling, General, and Administrative (SG and A) expenses.
Step 3: Detailed Explanation:
Let's analyze the options:

(A) Rent: Rent for facilities like offices, showrooms, or even the factory is a fundamental cost of doing business and is considered an operating expense.

(B) Wages: Wages of employees, particularly those in administrative, sales, and management roles, are a major component of operating expenses. (Note: Wages of factory workers directly involved in production are typically part of COGS, but wages in general are an operating cost).

(C) Advertising expenses: These costs are incurred to promote and sell products, making them a key part of selling expenses, which fall under the umbrella of operating expenses.

All three are necessary costs for the ongoing operations of a business.
Step 4: Final Answer:
Since Rent, Wages, and Advertising expenses are all examples of operating expenses, the correct answer is (D) All of these.