Capital budgeting includes expenditures directly associated with acquiring, replacing, and installing long-term facility assets. For the generator replacement project, the appropriate capital budget includes the purchase price of the new generator, removal of the existing generator, and installation labor.
The calculation is:
Generator purchase: $90,000
Existing generator removal: $9,000
Installation labor: $11,000
Total capital budget = $90,000 + $9,000 + $11,000 = $110,000.
Annual fuel consumption, routine maintenance, recurring permit charges, and periodic battery replacement are operating or recurring lifecycle expenditures rather than initial project capital costs.
Although actual financial reporting must follow the organization's capitalization policy, the examination scenario clearly distinguishes initial replacement expenditures from ongoing operating expenses.
Therefore, $110,000 represents the correct capital replacement budget.
[Reference: Healthcare Facility Financial Management; Capital and Operating Expenditure Principles., , ================]
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