CPIM Practice Exam

What does operating expense encompass in a business?

1. Profit generated from sales

2. All costs related to producing goal units

3. Marketing and advertising expenses

4. Only fixed costs associated with production

The correct answer is: All costs related to producing goal units

Operating expense refers to the costs incurred during the day-to-day operations of a business. This concept is broad in scope, encompassing all expenses that are necessary to run the company's core business activities, excluding costs associated with production, such as raw materials. The correct choice indicates that operating expenses include all costs related to producing goal units, which consists of both fixed and variable costs. Fixed costs are expenses that remain constant regardless of the production level, such as rent and salaries, while variable costs fluctuate based on production output, such as raw materials and direct labor. This choice accurately captures the comprehensive nature of operating expenses in a business context, as they reflect the combined financial commitments necessary to maintain operational efficiency and achieve production objectives. Other options focus too narrowly on aspects of business finances—profit from sales is a result rather than an expense, marketing and advertising expenses are just a subset of operating expenses, and fixed costs alone fail to include the full spectrum of expenses involved in operations.