Equipment costs are those expenses which must be incurred simply by the operating of the company. Without the operating equipment, the company would cease to function and cease to be profitable in any way.
Examples of such operating costs are not limited to manufacturing. Equipment may refer to any mechanism of the running of a business.
- Salaries or Wages
- Advertising and Marketing
- Raw materials (this is an incremental cost)
- License or Registration fees
- Real estate expenses (Rent, property tax)
- Fuel
- Public Utilities
- Maintenance
- Office supplies and consumable products
- Insurance
- Depreciation of equipment and eventual replacement costs (unless the facility has no moving parts it probably will wear out eventually)
- Damage and Replacement
- Taxes on production or operation
- Income taxes
Many of these costs will be fixed, and to a degree, even some of the variable overhead cost is difficult to manipulate or reduce. When any of these costs relate to a company's human capital, then the reduction of costs takes on a new and even more difficult dimension.
There are some areas in which overhead can't be easily, efficiently, or effectively reduced. But for each of these troublesome costs, there are many more that can be reduced or completely eliminated.
In the next section, some simple methods of overhead reduction will be discussed, as well as those that have the most to do with the eventual goal of reducing costs in the realm of electronic communications and IT—contracting and outsourcing.
