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Capital costs are fixed, one-timeexpenses incurred on the purchase ofland,buildings,construction, and equipment used in the production ofgoods or 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.
Capital costs include expenses for tangible goods such as the purchase of plants and machinery, as well as expenses for intangibles assets such astrademarks andsoftware development.
Capital costs are not limited to the initial construction of afactory or other business. Namely, the purchase of a newmachine to increase production and last for years is a capital cost. Capital costs do not includelabor costs (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.
For example, afossil fuel power plant's capital costs include the following:
They do not include the cost of thenatural gas,fuel oil orcoal used once the plant enters commercial operation or anytaxes on theelectricity that is produced. They also do not include the labor used to run the plant or the labor and supplies needed formaintenance.
Government generally providessubsidies throughinvestments andpartnerships in the initial capital costs ofresearch and manufacturing infrastructure that cannot be matched by investor-owned companies.