Capital cost
 | This article includes alist of references,related reading,orexternal links,but its sources remain unclear because it lacksinline citations.(December 2016) |
Capital costsare fixed, one-timeexpensesincurred on the purchase ofland,buildings,construction,and equipment used in the production ofgoodsor in the rendering ofservices.In other words, it is the total cost needed to bring a project to a commercially operable status. Whether a particular cost is capital or not depend on many factors such asaccounting,tax laws,andmateriality.
Categories
[edit]Capital costs include expenses for tangible goods such as the purchase of plants and machinery, as well as expenses for intangibles assets such astrademarksandsoftware development.
Capital costs are not limited to the initial construction of afactoryor other business. Namely, the purchase of a newmachineto increase production and last for years is a capital cost. Capital costs do not includelaborcosts (they do include construction labor). Unlikeoperating costs,capital costs are one-time expenses but payment may be spread out over many years in financial reports and tax returns. Capital costs are fixed and are therefore independent of the level of output.
Example
[edit]For example, afossil fuel power plant's capital costs include the following:
- Purchase of the land upon which the plant is built
- Permits and legal costs
- Equipment needed to run the plant
- Costs involving the construction of the plant
- Financing and commissioning the plant (prior to commercial operation)
They do not include the cost of thenatural gas,fuel oilorcoalused once the plant enters commercial operation or anytaxeson theelectricitythat is produced. They also do not include the labor used to run the plant or the labor and supplies needed formaintenance.
Funding
[edit]Government generally providessubsidiesthroughinvestmentsandpartnershipsin the initial capital costs ofresearchand manufacturing infrastructure that cannot be matched by investor-owned companies.
See also
[edit]- Capital expenditure(capex)
- Capital recovery factor
- Capital Cost Allowance(CCA)
- Cost of capital
- Cost overrun