3. Operating Cost Estimation

Try these first

1. 1.

   What is the formula for calculating depreciation?

   Hint

   Think about what occurs over the lifespan of an asset.

2. 2.

   What are the main components of ownership cost?

   Hint

   Consider what you would pay for an asset over time.

3. 3.

   What component is not typically included in ownership costs?

   • Fuel Consumption
   • Taxes
   • Insurance

   Hint

   Ownership pertains to what you pay for owning the asset.

4. 4.

   True or False: The Peurifoy method uses the initial purchase price to determine salvage value.

   • True
   • False

   Hint

   Think about how depreciation and salvage value are related.

5. 5.

   A company purchases an equipment for ₹5 crores with an estimated salvage value of 10%. If the useful life of the machine is 15 years, calculate its annual depreciation.

   Hint

   Subtract the estimated salvage value from the purchase price before dividing.

6. 6.

   Calculate the total cost of operation for an equipment where the operating cost is ₹4000 per hour. If the operator wages are ₹600 per hour and the equipment is used for 1600 hours annually, what is the total cost?

   Hint

   Think about how there's a fixed number of operational hours in a year.