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What Are Capital Resources? - Definition & Examples

What Are Capital Resources? - Definition & Examples
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Lesson Transcript
Instructor: Tara Schofield
The manufacturing process varies widely for businesses creating all types of goods, though all utilize resources. This lesson explains what capital resources are, how they are essential to the production of goods, and the difference between capital resources and raw materials.

Definition of Capital Resources

When was the last time you went to the mall? Remember all the storefronts, each filled with items for sale? Products available for purchase range from decorative knick-knacks to large pieces of furniture, kitchen appliances to classic blue jeans. It's endless! And, just imagine, each and every one of those goods was manufactured.

Of course, some items are handmade and one of a kind. But for those items that are one of many, manufactured by a business on a large scale, a lot of resources are used to bring these items to our storefronts. The resources used vary just as greatly as the goods themselves and include manpower, raw materials, time, and - the focus of this lesson - capital resources.

So, just what are capital resources and how are they different from the other factors taken into account in the manufacturing process? Capital resources are the man-made tools, machines, or locations used in the manufacturing of goods. Capital resources can be any asset, tool, piece of equipment, or housing facility that is used by a business over an extended period of time.

In contrast, raw materials are substances or materials used in the primary phase of a production process. They are often bought in bulk and shaped specifically to the individual company's needs. Also called commodities, raw materials include wood, metals like iron, or natural resources such as oil.

Resources must have a few key qualities to be considered a capital resource. They must:

  • Be a component in the manufacturing process and necessary for the process to produce a product.
  • Be used over an extended period of time. This time frame will vary according to the life expectancy of the resource, but may not only be used once.
  • Be man-made.

The tools and machines used in the manufacturing process are great examples of capital resources. These items, regardless of what kind of item they are used to make, meet all three qualities: they are man-made, essential to the manufacturing process, and can be used time and time again over a long period of time.

Examples of Capital Resources

Like the goods they produce, specific capital resources used by manufacturing companies will vary widely between firms. Even within the same industry, businesses often have different processes in place to produce the same product. Let's look at a few examples and determine which of the resources are essential to the manufacturing process.

Imagine a bakery. This bakery adds edible ingredients, such as eggs, flour, and sugar to large mixing machines to make basic dough. Once the dough has been made, it is divided into aluminum cake pans, which are then placed into a large brick oven to bake. Once cooked, the cakes are iced and decorated with sprinkles. What are some of this bakery's capital resources?

The mixing machines, the cake pans, and the large brick oven are all considered capital resources. The edibles (eggs, flour, sugar, icing, and sprinkles) are all considered raw materials because they are purchased in their original form in bulk and only used once.

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