Operating Expenses vs. SG&A: What's the Difference? (2024)

Operating Expenses vs. SG&A: An Overview

Operating expenses and selling, general, and administrative expenses (SG&A) are both types of costs involved in running a company, and significant in determining its financial well-being. While generally synonymous, they each can be listed separately on the corporate income statement. Both relate to the day-to-day costs of operating a business that are not directly tied to the production of goods and services. Below we discuss each in detail and their differences.

Key Takeaways

Both operating expenses and selling, general, and administrative expenses (SG&A) are common line items on a company's income statement.
Each of these line items consists of different types of expenses that are deduced from a company's revenue to eventually arrive at profit or loss.
Operating costs are the costs involved in running the day-to-day operations of a company and most often make up the bulk of a company's expenses.
Common operating costs include rent, utilities, insurance premiums, and property taxes.
SG&A expenses also count as operating expenses but can differ slightly on how they are reported by a company.
Common SG&A expenses include legal expenses, accounting expenses, and advertising expenses.

Operating Expenses

Operating expenses, or OPEXfor short, are the costs involved in running the day-to-day operations of a company; they typically make up the majority of a company's expenses.

OPEX is not included inthe cost of goods sold(COGS), which consistsofthe direct costs involved in the production of a company's goods and services. COGS includes direct labor, direct materials or raw materials, and overhead costs for theproduction facility. The cost of goods sold is typically listed as a separate line item on the income statement.

Operating expenses are the remainingcosts that are not included in COGS. Operating expenses caninclude:

Selling, General, and AdministrativeExpenses (SG&A)

Selling, general, and administrative expenses also consist of a company's operating expenses that are not included in the direct costs of production or cost of goods sold. In other words, SG&A includes all non-production costs. While this is typically synonymous with operating expenses, many times companies list SG&A as a separate line item on the income statement below the cost of goods sold, under expenses.

SG&A may be listed as a single line item or broken out into several line items.

If SG&A expenses are broken out, they mayinclude:

Accounting expenses
Legal expenses
Corporate office overhead expenses such as salaries of administrative staff and corporate officers
Advertisingand promotional materials
Marketing and sales expenses
Rent, utilities, and supplies that are not part of manufacturing

SG&A expense includes all non-production costs.

SG&A expenses are typically the costs associated with a company's overall overhead since they can not be directly traced to the production of a product or service.SG&A includes nearly everything that isn't included inthe cost of goods sold. Interest expense is one of the notable expenses not in SG&A and is listed as a separate line item on the income statement. Also, research and development costs are not included in SG&A.

Special Considerations

The decision to list SG&A and operating expenses separately on the income statement is up to the company's management. Some companies may prefer more discretion when reportingemployee salaries, pensions, insurance, and marketing costs.As a result, an aggregate total of all non-production expenses is compiled and reported as a single line item titledSG&A.

However, some companies may report selling expenses asa separate line item, in which case the SG&A is changed to Like operating expenses, administrative expenses are incurred regardless of the numberof sales being generated by the company.

General costs such as office supplies, telephone bills, and postage are considered to be administrative expenses. Compensation for employees who provide overall support for the company that is not tied to a specific department isalso considered an administrative expense.

In other words, administrative expenses are a subset of operating expenses and can be listed as G&A to separateselling expenses from the general administrative costs of running the company. Of course, if a company includes its selling costs in administrative expenses, it'll be listed underSG&A on the income statement.It all depends on how the company wants to break out its operating expenses.

What Is Included in Operating Expenses?

Common expenses included in operating expenses are rent, utilities, labor, and property taxes. These are the expenses directly tied to the day-to-day operations of a business.

What Is COGS vs. SG&A?

Cost of goods sold (COGS) are the costs directly associated with the production of a good or service. Selling, general, and administrative expenses (SG&) are certain expenses required to run a business but not directly tied to the production of goods or services. These include sales, marketing, accounting, legal counsel, and consulting.

Where Is SG&A Located?

Selling, general, and administrative (SG&A) expenses are located on a company's income statement in their financial statements. Depending on the company, the reporting for SG&A may have its own line item or it may be consolidated into operating expenses.

The Bottom Line

Typically, the operating expenses and SG&Aof a company represent the same costs; those independent ofand not included in the cost of goods sold.But sometimes, SG&A is listed as a subcategory of operating expenses on the income statement.

In times of financial difficulty, operating expenses can become animportant focus ofmanagement when implementing cost controls.

Operating expenses includecosts that are incurred even when no sales are generated, such as advertising costs, rent, interest payments on debt, and administrative salaries.But typically, selling, general,and administrative expensesrepresentthe same costs as operating expenses.