3.5. Total Operating Cost Calculation

Try these first

1. 1.

   What are the three main components of total operating costs?

   Hint

   Think about the costs related to owning and using equipment.

2. 2.

   How do you calculate annual depreciation?

   Hint

   Look for the formula involving initial prices.

3. 3.

   What is included in ownership costs?

   • Fuel costs
   • Depreciation
   • Wages

   Hint

   Think about costs related to owning, not using the equipment.

4. 4.

   True or False: The Peurifoy method considers the time value of money.

   • True
   • False

   Hint

   Remember how time and cash flows are related.

5. 5.

   A company purchases a dump truck for 4 crores. Calculate the annual depreciation if the useful life is estimated at 10 years and tire costs are 15 lakhs.

   Hint

   Consider both initial purchase and tire costs.

6. 6.

   Using the Peurifoy method, explain how the time value adjustment might alter the estimated costs for a project over 15 years.

   Hint

   Think about how inflation affects money over time.