For all those interested in the field of production, understanding what is a capital resource is very important. In this article, we shall discuss it in detail with the help of some interesting examples.
For manufacturing any product, we need some goods which have certain properties that are essential for ensuring the durability and utility of the product. These goods which are used in production of new goods and services are defined as ‘capital resources’. In order to achieve production targets and deliver high quality products to the customers, we should have these resources in plenty. Any shortage can bring the entire production process to a stand still. Because of this, the sales and profits of a company are affected.
Importance of Capital Resource
Capital resources are considered to be a part of the entire production process. They are useful even in businesses which do not offer goods, but provide services to clients. In fact, they are the inputs which any organization have to use for getting the desired products. Over the years, customer expectations from products have risen tremendously. Today’s buyer wants innovative, new and technologically advanced products which provide real value for the money paid. So, naturally, those firms which are not able to produce such products will lag behind in the race of acquiring new customers. Therefore, the key is to improve the resources used for production purposes and make them more technologically advanced.
Safeguarding the available capital resources is as important as improving their quality. A company invests a big sum in acquiring and developing these resources and so, any kind of wastage will result in heavy financial losses and interruptions in the production process. So, keeping these valuable resources safely and under inspection of trained professionals is very necessary.
Are All Assets Capital Resources?
The answer for this question is NO. Many people might be confused why not all assets come under this category. Here is the explanation:
- An asset should be such that it is useful in the process of production for a very long period. Technically, any goods which cannot be used consistently for making new goods cannot be considered in this category
- Capital resource is that asset with a production unit which comes handy in storing finished goods which are ready for sale. This is yet another important property
- Cash in hand is not considered as many experts describe it as the thing required to buy a capital resource rather than a capital resource in itself
Examples of Capital Resources
The following are some of the best examples
Manufacturing machinery: Manufacturing machinery can be used to produce goods for a long period (several years) provided it is well maintained and serviced.
Warehouse: A warehouse can be used for the storage of finished or ready for sale goods.
Land: Land is a long servicing source of natural resources.
Power Generators: A power generator is needed in keeping the goods producing machines working.
Buildings: If services are provided to customers in buildings, then they are included in the category of capital resources.
Maintenance equipment: Maintenance equipment is required for ensuring smooth operations of the machines producing goods.
List of Capital Resources
- Cell phone
- Fax machines
- Free weights
Capital resources like plant and machinery are useful in the computation of manufacturing overhead costs which help a factory know its profits. The above mentioned examples must have helped you in knowing the exact concept and its importance. Apart from preservation of such resources, it is also essential to make best use of them for meeting the orders of items placed by customers. So, try to understand this concept and use the information in the right way. All the best!