Pre-production Expenses

All those expenses will be pre-production expenses whose services are taken before the production. We need capital for starting our business. So, expenses for issuing shares and debentures will be included in it. We also pay commission to brokers. This commission will also be included in pre-production expenses. Sometime, we contract with underwriters who give us the guarantee for selling our shares and debentures. For this, they take underwriting commission. This underwriting commission will also our pre-production expense. We also pay the cost of research and development of product before producing it. All these research and development expenses will be pre-production expenses. For production of goods, we need plant, building and machinery. We pay for these. So, all these capital expenditures will also be included in pre-production expenses.

Except above, sometime, producer needs to acquire product rights or licence. Payment for buying the rights of other person will be pre-production expense. For example, a producer wants to make on a famous novel. At that time, he has to pay the amount to the writer of that novel.

What is the Need to Know Pre- Production Expenses?

1. For making better budget, we need to calculate all expected pre-production expenses. For example, we are interested to make a good film. At that time, we have to make its budget. Because this budget will be big. We will divide in to pre-production budget and post-production budget. If we estimate our pre-production expenses correctly, we can do work for reducing it efficiently.

2. To know pre-production expenses are also necessary, if we have to complete our production through taking of loan.