1) Find the mistakes made in the table: Table 22-3 Calculating Machinery Costs f

Question

1) Find the mistakes made in the table: Table 22-3 Calculating Machinery Costs for a new Combine Step 1: Basic data New Combine, 24 foot header, 240-hp desel List price purchase cost Salvage value (22% of new list price) avg. value ownership life Estimated annual use interest rate price of fuel per gallon Step 2: Ownership Costs Depreciation Interest Payment Taxes, insurance, and housing $175,000 $160,000 $38,500 $99,250 10 years 300 hr 8% 3.00 $12,150 $7,940 $1,489 $21,579 $71.93 Total annual Ownership Costs Ownership costs per hour Step 3: Operating costs Repairs Diesel fuel Lubrication and Filters Labor $6,983 $7,128 $1,069 $3,600 $18,780 $62.60 Total operating Costs Operating-Costs per hr Step 4: Calculate Total Costs per hr Ownership costs per hr Operating costs per hr Total costs per hr Step 5: Costs per acre preformance rate: 8 acres per hr $71.93 $62.60 $134.53 $16.82 1

Explanation / Answer

In calculating machinery costs, you can not consider the interest payment made on financing the machine. The recognized accounting principles and practices like Accounting Standard on 'Borrowing cost' states that interest on financing the machinery can not form part of machinery cost once its start operating. However, interest paid before its start operating will be considered in calculating machinery cost. So, this is the mistake found in the table.

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