Arizona State University (ASU) Fin300 Fundamentals of Finance Final Practice Exam

Operating expenses are the costs incurred during regular business operations, excluding the cost of goods sold (COGS). These are the expenses necessary to maintain the day-to-day operations of a business. Salaries and wages fall under this category because they are ongoing costs associated with paying employees who are essential for the daily functioning of the organization.

In contrast, the cost of raw materials is considered a direct cost of production and typically included in COGS rather than operating expenses. Research and development costs, although critical for innovation and future growth, are also categorized separately and are often considered part of a business's operating expenses; however, they can be subject to different treatment depending on accounting practices. Capital expenditures are investments in long-term assets—such as equipment or property—and are not included in operating expenses since they represent a different type of financial outflow intended for longer-term value creation.

Therefore, salaries and wages are the most representative of regular operating expenses, directly tied to the human resources necessary for the ongoing activities of the business.