how do you classify what the cost to set up a manufacturing facility as? is it general, selling and administrative and what type of cost is it? Please Help.
To classify the cost of setting up a manufacturing facility, you would typically include it as a part of the initial investment in the facility. This cost is usually categorized as a "capital expenditure" or "capital cost."
Capital expenditures are costs incurred to acquire, construct, or enhance long-term assets like buildings, machinery, or equipment. These costs are not immediately expensed but are instead depreciated over their useful life.
In terms of cost classification, the costs associated with setting up a manufacturing facility can be further categorized into different types:
1. Direct Costs: These are expenses that can be specifically attributed to the construction or acquisition of the manufacturing facility. They include items such as land purchase costs, building construction or renovation costs, machinery and equipment costs, installation expenses, and legal or licensing fees directly related to establishing the facility.
2. Indirect Costs: These are costs that are not directly linked to the facility but are necessary to support its establishment. Indirect costs may include expenses like architectural or engineering design fees, permits and regulatory compliance costs, project management fees, and other miscellaneous costs incurred during the setup.
3. Overhead Costs: Once the manufacturing facility is operational, ongoing costs such as utilities (electricity, water), property taxes, insurance, maintenance, and repair expenses will be categorized as overhead costs. These costs are necessary for the day-to-day operations of the facility.
It is important to mention that the exact classification may vary depending on the specific accounting practices and policies of an organization. Therefore, it is recommended to consult with an accountant or finance professional to ensure accurate classification based on your specific circumstances.