Question
Define capital expenditure, indirect materials, direct labour, manufacturing overhead, non manufacturing cost.
Answer
Capital expenditure is different to operational expenditure, as the former refers to the funds used by a firm to maintain or acquire fixed assets. These can include but are not limited to: vehicles, property, land, equipment, etc. Capital expenditure is usually undertaken when a business is starting a new project.
Direct material refers to the actual raw materials that are used during the production process to create a product. For example the steel included in a vehicle.
Direct labour refers to the cost of wages that are incurred to produce a specific good.
Manufacturing overhead refers to the costs incurred in the factory other than the costs of direct materials and labour, this can include costs such as electricity.
Non-manufacturing cost refers to manufacturer’s costs that occur apart from the actual manufacturing function. This can include depreciation of non-manufacturing equipment, expenses for vehicles used to sell and deliver products, etc (Averkamp,n.d.).
References
Averkamp, H. (n.d.) Introduction to Manufacturing Overhead. Available at: http://www.accountingcoach.com/manufacturing-overhead/explanation (accessed 15/7/2016)
