Depreciation cost types

Water. Costs are available from the supplier s invoices but where the operator has reservoirs and/or licenses for extraction from canals or rivers the annual fees and penalties, which are sometimes taxable, should not be forgotten. Projections of future demands will need to be carefully considered where this type of arrangement is made, since such contracts are often available only on long-term bases. Water-treatment plant will produce its own range of costs across the whole field of depreciation, materials, electricity, labor, etc. and these will need to be apportioned to the steam cost departments before final allocation to the user departments. 

All rocket motor costs per unit, and therefore rocket proplnt costs, are most sensitive to the number of units being produced and to the number of different formulations mixed in a given time interval, by the same equipment, so that a direct comparson based only on processes or proplnt types are meaningless. There are also inherent difficulties in comparing NC base proplnts with composite propints. The former are made in government plants (some of which are operated by private industry) for the most part and so accounting for indirect costs (taxes, depreciation, insurance, and return on investment) cannot be compared to the situation... 

Thus there are two types of expenses those that are independent of the amount of usage and those that depend on how much the car is driven. The former are known as fixed charges and include depreciation, insurance, interest costs, garage expenses, driver s license, and city and state taxes. 

A chemical plant has every type of cost associated with the operation of a car and many more. The major categories are raw materials, conversion costs, depreciation, sales, research, taxes and insurance, and general administration costs. A method for determining the magnitude of each of these follows. A summary is given in Table 10-2. 

Chapter 3 treats the most common type of objective function, the cost or revenue function. Historically, the majority of optimization applications have involved trade-offs between capital costs and operating costs. The nature of the trade-off depends on a number of assumptions such as the desired rate of return on investment, service life, depreciation method, and so on. While an objective function based on net present value is preferred for the purposes of optimization, discounted cash flow based on spreadsheet analysis can be employed as well. 

The Canadian Income Tax Act IT-285R2 dated March 31, 1994 gives some general definitions and remarks on depreciation of property and capital cost allowance. Schedule II lists the types of property divided into classes, percentage depreciation and description of the property. Some examples are given in Table 5.4. 

Certain expenses are always present in an industrial plant whether or not the manufacturing process is in operation. Costs that are invariant with the amount of production are designated as fixed costs or fixed charges. These include costs for depreciation, local property taxes, insurance, and rent. Expenses of this type are a direct function of the capital investment. As a rough approximation, these charges amount to about 10 to 20 percent of the total product cost. 

A major source of new capital is from internal capital, including, primarily, undistributed profits and depreciation funds. Since this definitely is owned capital, it is not necessary to consider interest as a cost. However, some concerns prefer to assign a cost to this type of capital, particularly if comparisons of alternative investments are to be made. The reasoning here is that the owned capital could be loaned out or put into other ventures to give a definite return. 

Capacity loss due to materials actually consumed is measured as depletion. Depletion cost equals the initial cost times the ratio of amount of material used to original amount of material purchased. This type of depreciation is particularly applicable to natural resources, such as stands of timber or mineral and oil deposits. 

Example 5 Comparison of alternative investments by different profitability methods. A company has three alternative investments which are being considered. Because all three investments are for the same type of unit and yield the same service, only one of the investments can be accepted. The risk factors are the same for all three cases. Company policies, based on the current economic situation, dictate that a minimum annual return on the original investment of 15 percent after taxes must be predicted for any unnecessary investment with interest on investment not included as a cost. (This may be assumed to mean that other equally sound investments yielding a 15 percent return after taxes are available.) Company policies also dictate that, where applicable, straight-line depreciation is used and, for time-value of money interpretations, end-of-year cost and profit analysis is used. Land value and prestartup costs can be ignored. 

Land development cost, which is not depreciable, consists of such items as site clearing, constmction of roads, walkways, raihoads, fences, parking lots, wharves, piers, recreational areas, and landscaping. Presumably, these items improve the value of the land, and their costs, to a certain extent, are recoverable. Table 2.17 lists land development cost for three process types as a fraction of the depreciable capital cost. 

Miscellaneous Cranes.— Wall and jib cranes, whether stationary or of the traveling type, hoists of various kinds and all other varieties of cranes lend themselves to economic selection and analyses as to probable net cost of operation along lines very similar to those followed in the case of overhead electric cranes. A full knowledge of operating requirements is necessary, suitable provisions should be made for possible expansion, and the mistake avoided of assuming too great a mechanical efficiency for the equipment. An intimate knowledge of costs— labor and equipment—and depreciation expenses is also required for even such approximate estimates, if they are to be at all reliable. 

One solution to this issue is to use automation wherever possible and to use continuous (more properly referred to as steady-state) reactions rather than batch ones. Doing so, of course, is likely to increase the capital cost of the plant and reduce the versatility of the process and so the optimum balance must be found. The use of hazardous materials or high pressures will also increase the cost of the plant. In the former case, the materials of construction and the safety precautions will add to the cost. In the latter, the vessels must be stronger, hence usually thicker-walled and with additional safety features, again resulting in higher costs. The capital cost is usually depreciated over a set time, determined by the average lifetime of the type of plant in question. For example, if a plant costs 1,000,000 and is expected to last for 10 years, the annual depreciation would be 100,000. If the output is 10 ton per annum, then the capital depreciation will add 10 per kg to the cost of the product. 

Operating expense. Different types of separators have different utility, labor, maintenance, depreciation, and quality control costs. If an MSA is required, 100% recovery of this substance will not be possible, and a makeup cost will be incurred. Raw material costs are often the major item in operating expense. Therefore, it is imperative that the separator be capable of operating at the design efficiency. 

Depreciation follows the United States Modified Accelerated Cost Recovery System (MACRS). Under IRS regulations, most utility-type investments use either a 15- or 20-year depreciation schedule. Certain investments, such as renewables, are allowed to use a 5-year depreciation schedule. The capital recovery factor (CRF) is calculated using... 

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