Which of the following costs should not be included in a capital budget for replacing a central chiller?

A service contract should not be included in a capital budget for replacing a central chiller because capital budgets are typically reserved for expenses that provide long-term assets and improvements. The costs included in a capital budget usually relate to the acquisition, installation, and initial setup of physical assets—this would encompass costs such as design fees, the cost for removal of the old chiller, and commissioning, which are all directly tied to the project of placing a new asset into service.

In contrast, a service contract is an ongoing expense related to the maintenance and operation of the chiller once it is installed and operational. Such costs are generally considered part of the operational budget rather than the capital budget, since they recur over time and do not contribute to the creation of a new asset. service costs would be accounted for in the operational or maintenance budget, reflecting the ongoing costs of running and maintaining the equipment after the capital project has been completed. This distinction emphasizes the difference between capital expenditures, which are one-time costs associated with acquiring or improving assets, and operational expenditures, which are recurring costs necessary to maintain those assets.