What do operating costs include?

Operating costs encompass a variety of expenses that are necessary for running a business, such as a pharmacy. This includes both costs-of-operations and cost-of-goods-sold, which together give a comprehensive view of the financial health of the pharmacy.

Costs-of-operations refer to the expenses incurred in the day-to-day functioning of the pharmacy, encompassing things like rent, utilities, salaries, and other overheads. These are essential for maintaining the overall infrastructure and service capability of the pharmacy.

Cost-of-goods-sold relates specifically to the direct costs associated with the inventory and products sold. This includes the purchase price of medications, supplies, and other goods that the pharmacy provides to customers.

By including both types of costs, a pharmacy can accurately assess its total operating expenses. This holistic view is crucial for management to make informed decisions, analyze profitability, and plan for future budgetary needs. Managers need a complete understanding of operating costs to effectively control expenses and maximize profitability, highlighting the importance of recognizing both components in comprehensive cost analysis.