Question

The purchase price of an excavator is $225,200, excluding sales tax and deliver. Delivery is $5,500 and sales tax is 7.2% of the purchase price (excluding delivery). The expected useful life of the excavator is 10 years. At the end of its useful life, the excavator is expect to have a salvage value of $10,000. It is expected that the excavator will be used 1,500 hours per year. Using an interest rate of 7.5% determine the hourly depreciation and interest cost for the excavator.

Answer 1

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Excavator
Straight line Method	Amount $	Note
Purchase price	225,200.00
Add: Sales tax @ 7.2%	16,214.00
Add: Delivery charges	5,500.00
Total cost	246,914.00
Less: Salvage value	10,000.00
Depreciable cost	236,914.00	A
Life	4.00	B
Annual depreciation	59,229.00	C=A/B
Annual life (hours)	1,500.00	D
Depreciation cost per hour	39.49	E=C/D
Purchase price	225,200.00	F
Interest rate	7.20%	G
Annual Interest	16,214.00	H=F*G
Annual life (hours)	1,500.00	See D
Interest cost per hour	10.81	I=H/D