2.4. Cumulative Cost Per Hour Calculation for Obsolescence

Try these first

1. 1.

   What is the downtime cost per hour for equipment costing 900 rupees at 3% downtime?

   Hint

   Use the formula downtime cost = equipment cost x downtime percentage.

2. 2.

   If the yearly operating hours are 2000, what are the total downtime costs for the first year?

   Hint

   Multiply the downtime cost per hour by operating hours.

3. 3.

   What is the formula to calculate downtime costs?

   Hint

   Remember the basic definition of downtime costs.

4. 4.

   The obsolescence cost increases as the equipment gets older.

   • True
   • False

   Hint

   Reflect on the concept of aging and its impact on machinery.

5. 5.

   Assuming your equipment costs 1000 rupees per hour, and downtime costs increase from 2% to 4% over three years, calculate cumulative costs over these years while considering productivity loss of 0.95 each year.

   Hint

   Calculate each year's downtime cost carefully and then sum them.

6. 6.

   Your equipment cost is 700 rupees per hour, and obsolescence factor is 0.1. Calculate the impact of retaining this equipment for five years considering annual deterioration (using the third-year obsolescence cost model).

   Hint

   Summarizing the yearly total will help arrive at a decision point.