2. Obsolescence Cost Calculation

Try these first

1. 1.

   What is the formula for calculating the downtime cost?

   Hint

   Think about what percentage applies to the equipment costs.

2. 2.

   If the downtime cost is 54,000 rupees for the first year, how much is the cost per hour?

   Hint

   Total cost divided by hours gives hourly rate.

3. 3.

   What is the primary formula for downtime cost?

   • Total downtime cost/year
   • Equipment cost/hour
   • Downtime % * Equipment cost

   Hint

   Consider the percentage and how it relates to overall cost.

4. 4.

   True or False: Obsolescence cost decreases as equipment ages.

   • True
   • False

   Hint

   Reflect on how competition affects older equipment.

5. 5.

   If a machine's equipment cost is 750 rupees per hour, and its obsolescence factor for the third year is 0.10, calculate the annual obsolescence cost and explain how it would affect future operational budgets.

   Hint

   Apply the same formula we discussed for obsolescence calculations.

6. 6.

   Consider a case where an operating machine shows a 0.97 productivity factor leading to increased cumulative costs over three years. How would failing to adjust for this affect the overall expense involved in machinery replacement?

   Hint

   Think about how productivity percentages can change operational efficiency.