5.2. Cumulative Maintenance Costs

Try these first

1. 1.

   What is economic life?

   Hint

   Think about when holding costs are minimized.

2. 2.

   Define depreciation.

   Hint

   It's a way to measure an asset's declining worth.

3. 3.

   What is the economic life of machinery?

   • Short period of highest efficiency
   • The longest time a machine can operate
   • Cost-effective operational period

   Hint

   Focus on cost-effectiveness.

4. 4.

   True or False: Downtime costs decrease as the machine's age increases.

   • True
   • False

   Hint

   Think about how older machines perform.

5. 5.

   A company has machinery that was purchased for 50,00,000 with a useful life of 10 years. Calculate the depreciation for Year 1 and Year 2 using the double declining balance method.

   Hint

   Apply the formula to find the book value each year.

6. 6.

   Calculate the cumulative maintenance costs if yearly repair costs are estimated to start at 1,00,000 and increase by 5% annually. Determine the cumulative cost after five years.

   Hint

   Add each year's increasing repair cost to find the total.