Obsolescence cost

Lower yields and higher costs were the reasons for the obsolescence of this process. 

Fixed capital investments are characterized by the fact that they have to be replaced after a number of years commonly referred to as service life or useful life period. This replacement is not necessarily due to wear and tear of equipment. Other factors include technological advances that may render the equipment obsolete. Furthermore, over the usefiil life of the equipment, the plant should plan to recover the capital cost expenditure. In this regard, the notion of depreciation is useful. Depreciation or amortization is an annual allowance which is set aside to account for the wear, tear, and obsolescence of a process such that by the end of the useful life of the process, enough fund is accumulated to replace the process. The simplest method for determining depreciation is referred to as the straight line method in which... 

Problems of logistics and inventory occupy the attention of many investigators because of the high cost of storage of inventory items on shelves or because of possible obsolescence of such items if one is concerned with spare parts. 

In time, of course, it will suffer wear and tear and eventually become unusable. Its life will also be shortened by obsolescence, a very important factor. A 50 year old two-pan analytical balance, for example, may be in perfect working order, but its value is only that of an antique. The cost of equipment will also determine whether or not it should be capitalized. Rules for this will vary from one laboratory to another. 

Cost is always a problem when vehicles are made in limited numbers since the parts will cost more. The lithium ion batteries used in Nissan s Altra EV were reported to cost close to six figures. Since electric cars sell for 30,000 or more, a lease can soften the cost of the vehicle. It also isolates the user from expensive battery replacements. Even these subsidized leases required an extra 100 or more in monthly payments compared to a more conventional vehicle. Leasing allows the manufacturers to keep control of the vehicle for repairs and recalls. As the technology changes, a lease keeps customers from having a 2-3 year vehicle that is out of warranty with needing obsolescent, expensive parts. 

Fixed assets (excluding land) used by a company usually decrease in value over time, even when properly maintained. This can be due to product obsolescence or simply wearing out (with an ultimate need to be replaced). If an asset life is less than a year, the expenditure on it is included in the profit/loss account as a cost. If, however, its life is greater than 1 year, then a way has to be found to adjust both profit/loss account and balance sheet to give recognition to the actual life of the asset. 

The value of a plant will decrease with time because of ware and technical obsolescence. In a sense, a plant will be consumed to manufacture a product. Depreciation determines the contribution of equipment cost to the production cost. 

The annual cost of equipment includes depreciation and maintenance. In addition, an allowance should be made for the loss of interest which, if the instrument had not been purchased, would have accrued from investment of the capital. Depreciation is the difference between the capital cost and the secondhand value. In practice, the secondhand value of an instrument is usually small, not because it is worn out, but because there are newer and better instruments available for performing the same task. Few instruments cannot be replaced by faster and better ones after 5 years, although many continue to be used for long after this time despite progressively increasing maintenance costs. This built-in obsolescence makes rental attractive as this enables the user to change his instrument quickly without loss of capital it may also act as an incentive to manufacturers to improve their maintenance service. 

E-F Toward the end of project life, the rate of cash flow may tend to fall off, due to increased operating costs and falling sales volume and price due to obsolescence of the plant, and the slope of the curve changes. 

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