3.3. Importance of Accurate Cost Estimation

Try these first

1. 1.

   Calculate the downtime cost per hour if the machine cost is 1,200 rupees and the downtime percentage is 5%.

   Hint

   Use the formula: Downtime Cost = (Percentage x Equipment Cost) / 100.

2. 2.

   What is the cumulative cost at the end of the first year if the yearly downtime cost is 54,000 rupees?

   Hint

   Remember cumulative cost is the addition of costs over time.

3. 3.

   What is the downtime cost per hour if the machinery costs 1,000 rupees and the downtime percentage is 4%?

   • 20 rupees
   • 40 rupees
   • 60 rupees

   Hint

   Use the percentage formula.

4. 4.

   True or False: The economic life of a machine is when its cumulative costs are at their highest.

   • True
   • False

   Hint

   Think about the concept of minimizing costs.

5. 5.

   A company has a machine with a purchase cost of 1,200 rupees. Downtime costs start at 2% in the first year and grow to 10% in the fifth year. Calculate the total downtime cost across five years if the machine operates 2,000 hours annually and provide insights on decision making for replacement.

   Hint

   Calculate each year separately and observe trends.

6. 6.

   If the obsolescence costs of a machine are projected to rise 5% per year starting from 45 rupees in year two, forecast the obsolescence costs for years 3 to 8. Discuss the implications of these costs in relation to equipment lifecycle management.

   Hint

   Evaluate each year's percentage increase and total cumulative effect.