Operational cost

The operational costs of a firm are the costs a firm incurs during its everyday business, it does not include the capital costs of building factories but does include costs such as labor, materials, monthly lease payments, transport costs etc.[1] These costs are specifically related to the output produced by a firm.

For example, a firm that produces solar panels has to pay for the materials to make the panels, the workers who assemble them, the electricity that powers the factory and the cost of transporting the panels to market. The cost of the factory (assuming it is owned by the firm) is not an operating cost because it is not incurred while producing the solar panels (output).

These costs are a combination of fixed and variable costs. As the cost of producing output goes up (inputs such as: higher raw material or labor prices etc.) so does the operational cost, as the cost of inputs falls, so does the operational cost of a firm.[2]

See Also

References

  1. Investopedia. "Operating Cost." [Online], Available: http://www.investopedia.com/terms/o/operating-cost.asp [Aug 30, 2016].
  2. A. Goolsbee, S. Levitt and C. Syverson. Microeconomics. New York: Worth Publishers, 2013, pp. 85.

Authors and Editors

Lyndon G., Jason Donev
Last updated: September 17, 2016
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