Define capital expenditure, indirect material, direct labor, manufacturing overhead, non-manufacturing cost.

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.).

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References

• Averkamp, H. (n.d.) Introduction to Manufacturing Overhead. Available at: http://www.accountingcoach.com/manufacturing-overhead/explanation (accessed 15/7/2016)