ECE472H1 Study Guide - Final Guide: Cash Flow, Historical Cost, Standard Cost Accounting
20 Dec 2018
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Costs are higher than market value: to fairly compare alternative, one must consider all the costs over the life of each alternative. Often, there is a trade-off between first cost and operating & maintenance. Cost: difference between functional life and economic life. An engine may remain functionally working for 40 years or more, but, because of periodic advancements in machine design technology, newer engines will have higher production rates, and improved accuracy and reliability. Therefore, the economically useful life of an engine may be only 10 years. (pg 21 of textbook): straight line depreciation (per year) = (purchase cost - estimated salvage value) / 5% which is typical in this decade (even less 2-3% today): look at lecture notes to understand: present value cost, future value. Indirect material and labour costs are still part of cost of goods manufactured (not business overhead): business overhead includes general and administrative costs, marketing and selling.
