INTEREST PAYMENTS

Interest is the monetary charge for the privilege of borrowing money, typically expressed as an annual
percentage rate (APR). Interest is the amount of money a lender or financial institution receives for
lending out money. Interest can also refer to the amount of ownership a stockholder has in a company,
usually expressed as a percentage.

Two main types of interest can be applied to loans—simple and compound. Simple interest is based on
the principal amount of a loan or deposit.

Simple Interest = P×r×n

where:

P=Principal amount

r=Annual interest rate

n=Term of loan, in years

In contrast, compound interest is based on the principal amount and the interest that accumulates on it
in every period.

If you deposit $1,000 in an account that pays 1 percent annual interest, you’d earn $10 in interest after a
year. in Year Two you’d earn same $10.

Compound Interest = P×(1+r)t−P

where:

P=Principal amount

r=Annual interest rate

t=Number of years interest is applied

For example, if you deposit $1,000 in an account that pays 1 percent annual interest, you’d earn $10 in
interest after a year.

Thanks to compound interest, in Year Two you’d earn 1 percent on $1,010 — the principal plus the
interest, or $10.10 in interest payouts for the year.

PRE-OPERATING COST

Operating costs are associated with the maintenance and administration of a business on a day-to-day
basis. Operating costs include direct costs of goods sold (COGS) and other operating expenses—often
called selling, general, and administrative (SG&A)—which include rent, payroll, and other overhead
costs, as well as raw materials and maintenance expenses. Operating costs exclude non-operating
expenses related to financing, such as interest, investments, or foreign currency translation.
The operating cost is deducted from revenue to arrive at operating income and is reflected on a
company’s income statement.

 How to Calculate Operating Costs

Operating cost=Cost of goods sold + Operating expenses

From a company's income statement, take the total cost of goods sold, or COGS, which can also be
called cost of sales.

Find total operating expenses, which should be further down the income statement.

Add total operating expenses and COGS to arrive at the total operating costs for the period.

 Types of Operating Costs

1. Accounting and legal fees
2. Bank charges
3. Sales and marketing costs
4. Travel expenses
5. Entertainment costs
6. Non-capitalized research and development expenses
7. Office supply costs
8. Rent
9. Repair and maintenance costs
10. Utility expenses
11. Salary and wage expenses
12. Direct material costs
13. Direct labor
14. Rent of the plant or production facility
15. Benefits and wages for the production workers
16. Repair costs of equipment
17. Utility costs and taxes of the production facilities

A business’s operating costs are comprised of two components, fixed costs and variable costs, which
differ in important ways.

 Fixed Costs
A fixed cost is one that does not change with an increase or decrease in sales or productivity and
must be paid regardless of the company’s activity or performance. For example, a
manufacturing company must pay rent for factory space, regardless of how much it is producing
or earning. Fixed costs generally include overhead costs, insurance, security, and equipment.
 Variable Costs
Variable costs, like the name implies, are comprised of costs that vary with production. Unlike
fixed costs, variable costs increase as production increases and decrease as production
decreases. Examples of variable costs include raw material costs and the cost of electricity. In
order for a fast-food restaurant chain that sells French fries to increase its fry sales, for instance,
it will need to increase its purchase orders of potatoes from its supplier.
ADMINISTRATIVE COST

Administration costs, also known as overhead costs or fixed costs are the costs which incur on a
business or hotel solely from running. These overhead costs are not directly impacted by
manufacturing, production or sales volume and can therefore be described as fixed costs. They
can be seen as the basic costs that occur without a sale having to be made. Examples for
administrative costs are taxes, rent, insurance, licensing fees, utilities, accounting and legal
teams, administrative staff, facility upkeep, etc.

 How to calculate Administration costs?

Total Fixed Costs = Overhead costs

Add together all costs that are fixed costs – and you will receive the total amount of your
overhead costs.

 Fixed Costs
A fixed cost is one that does not change with an increase or decrease in sales or productivity and
must be paid regardless of the company’s activity or performance. For example, a
manufacturing company must pay rent for factory space, regardless of how much it is producing
or earning. Fixed costs generally include overhead costs, insurance, security, and equipment.
 Variable Costs
Variable costs, like the name implies, are comprised of costs that vary with production. Unlike
fixed costs, variable costs increase as production increases and decrease as production
decreases. Examples of variable costs include raw material costs and the cost of electricity. In
order for a fast-food restaurant chain that sells French fries to increase its fry sales, for instance,
it will need to increase its purchase orders of potatoes from its supplier.