5.2 - Minimum Cost Method Overview
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Practice Questions
Test your understanding with targeted questions
What is depreciation?
💡 Hint: Think about how an asset's value decreases over time.
How do you calculate the book value after one year?
💡 Hint: Use the initial value and subtract the determined depreciation.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the primary purpose of the minimum cost method?
💡 Hint: Think about the method's goal.
True or False: Dr. James Douglas's guidelines suggest that machinery should be replaced when the estimated annual cost of the current machine is lower than the proposed machine's costs.
💡 Hint: Consider when replacement should happen.
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Challenge Problems
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A machine has an initial cost of 5 million rupees, with 30% depreciation yearly. Calculate the depreciation and book value after two years, then find the cumulative cost if operating costs are 1.5 million each year.
💡 Hint: Follow the depreciation and cost formulas step by step.
If a proposed replacement's average annual cumulative cost is 2 million rupees, and your current machine's estimated annual cost is 2.5 million, describe the decision to replace.
💡 Hint: Compare current and proposed costs.
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