Future Business Leaders of America (FBLA) Agribusiness Practice Test

What does the term "operating expenses" include?

1. Only direct costs related to production

2. Costs of goods sold

3. Managers' salaries and rent

4. Sales tax payments

The correct answer is: Managers' salaries and rent

The term "operating expenses" refers to the ongoing costs necessary to run a business on a day-to-day basis, and this typically includes expenses such as managers' salaries, rent, utilities, and other administrative costs. These expenses are fundamental for maintaining the operations of a business but do not include direct production costs or costs linked specifically to the goods sold. Managers' salaries represent the cost associated with the personnel necessary to supervise the company's operations effectively, while rent is a fixed cost related to the physical space from which the business operates. Both of these costs are part of the operational workforce and infrastructure needed to run the business effectively. In contrast, direct costs related to production, known as cost of goods sold, and sales tax payments do not fall under operating expenses in the same way. Cost of goods sold primarily concerns the direct expenses tied to manufacturing the product itself, while sales tax payments pertain to regulatory obligations and do not reflect the operational cost structure necessary for running the day-to-day business. Therefore, the correct understanding of operating expenses encompasses the ongoing operational costs represented in the choice that includes managers' salaries and rent.