annual/financial report: cost of sales & net operating expenses vs variable & fixed cost?

in a companies annual report does:
‘cost of sales’ = variable cost
‘net operating expenses’ = fixed cost

many thanks in advance

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One Response to “annual/financial report: cost of sales & net operating expenses vs variable & fixed cost?”

  1. SteveT says:


    Cost of sales is a variable cost but it is not the same thing as "variable cost".

    Net operating expenses are not all fixed costs, though some may be. They are usually a mixture of fixed, variable and step variable costs.

    Costs are fixed when they don’t vary with the rate of sales or of production. Rent is usually a fixed cost because most businesses will be paying the same rent for their premises whether sales go up or down.

    Costs of sale are those costs directly attributable to the cost of goods sold – mostly purchases. These costs will normally vary directly with sales. If sales go up by 50% the business will probably have to buy 50% more stock. So costs of sales are a variable cost. But there are many other variable costs – stationery costs will go up broadly in line with sales, so will delivery costs etc.

    Some costs, like salesmen’s wages, tend to vary with sales but go up in jumps as new staff are taken on. If salesmen are paid only in commission then their wages may well be variable too.

    Net operating expenses includes all expenses that are not costs of sale. It will therefore include costs of all types – wages, commissions and rent.

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