2.3. Obsolescence Costs

Try these first

1. 1.

   Define economic life in relation to machinery.

   Hint

   Consider the balancing of operating costs.

2. 2.

   What are obsolescence costs?

   Hint

   Think about the influence of technology.

3. 3.

   What is economic life?

   • A period of maximum machine lifespan
   • Period with lowest operational costs
   • Time when machines become obsolete

   Hint

   It relates to the balance of repairs and operating expenses.

4. 4.

   True or False: Downtime costs increase with the age of the machine.

   • True
   • False

   Hint

   Consider how repairs affect work efficiency.

5. 5.

   You have a machine worth 35,00,000 with a useful life of 8 years. Calculate its estimated obsolescence costs at year 5, considering a 10% obsolescence per year.

   Hint

   Think about applying the percentage to the original value directly.

6. 6.

   Given the costs of maintenance increase by 10% annually starting at 2,00,000, calculate the total maintenance cost at the end of 4 years.

   Hint

   Use geometric progression to help in calculating total growth over multiple years.