• 1 Marks

QTB – Nov 2015 – L1 – SA – Q7 – Operations Research

This question identifies which factor does not affect the optimal replacement interval for an asset.

If an asset can be replaced at the same cost and there is no time value of money, then the problem of obtaining the optimal replacement interval involves the following EXCEPT:

A. Finding the cumulative operating/maintenance cost
B. Finding the total depreciation
C. Adding (A) and (B) above to get total cost
D. Finding the year at which marginal cost is minimized
E. Finding the year at which average cost is minimum

B

Explanation:
The correct answer is “B. Finding the total depreciation.” In obtaining the optimal replacement interval, the key factors include minimizing marginal cost and average cost and considering maintenance costs. Depreciation, while important for accounting, is not directly involved in determining the optimal replacement interval in this context.

Run-down:
Replacement theory focuses on determining the most cost-effective time to replace assets based on operating and maintenance costs, marginal and average cost, but does not typically include depreciation in the analysis for optimal intervals.

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