3.4. Cumulative Usage and Costs per Hour

Try these first

1. 1.

   Define economic life in your own words.

   Hint

   Think about the meaning of cost-effectiveness in operating machinery.

2. 2.

   What are the main reasons for costs to increase after economic life?

   Hint

   Consider factors affecting the machine's usability over time.

3. 3.

   What is the economic life of a machine?

   • Time when maintenance costs are minimum
   • Duration before significant cost increases
   • Time when the machine can be sold for maximum value

   Hint

   Consider the term 'economic'.

4. 4.

   True or False: Cumulative costs per hour decrease as the usage of a machine increases.

   • True
   • False

   Hint

   Think about how expenses are allocated.

5. 5.

   A machine is purchased at ₹45,00,000 with a 10-year lifespan. Calculate its depreciation at the end of the fifth year using the double declining balance method.

   Hint

   First calculate the depreciated value after the previous year, then apply the formula.

6. 6.

   An old excavator has been used for 4,000 hours with increasing maintenance costs each year: year 1 = ₹50,000, year 2 = ₹70,000, year 3 = ₹90,000. Calculate the average maintenance cost per hour at this point.

   Hint

   Total the costs, then divide by total usage.