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Difficulty: EasyConsumption-Based Model (CapEx vs OpEx)

A retail company decides to host its inventory database in Microsoft Azure. Instead of purchasing physical servers upfront, the company pays for the database services monthly based on actual usage. What type of expense is represented by these monthly, usage-based payments?

  1. Operational Expenditure (OpEx)Answer
  2. B
    Capital Expenditure (CapEx)
  3. C
    Fixed Capital Expenditure
  4. D
    Depreciation Expenditure

Answer

Operational Expenditure (OpEx)
The correct answer is Operational Expenditure (OpEx). Under the consumption-based model of cloud computing, there are no upfront costs, and organizations pay for resources as they use them. These ongoing costs are classified as operational expenditures on a company's balance sheet.

Step-by-Step Solution

1
Analyze the financial model described in the scenario.
The company pays for the service monthly based on actual usage, with no upfront physical server purchases.
This matches a pay-as-you-go or consumption-based model.
2
Classify the expense type for monthly, usage-based services.
Usage-based payments for services are categorized as operational costs.
Operational Expenditure (OpEx) is spending money on products or services now and being billed for them now, whereas Capital Expenditure (CapEx) is spending money on physical infrastructure upfront.

Key Concept

Consumption-Based Model (CapEx vs OpEx)
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Topics

Consumption-Based Model (CapEx vs OpEx)

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