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If you buy a machine for 10.000 dollars, which costs as a yearly write-off 2000 dollars, how do I calculate the cost per usage of a machine? Do you just divide the the yearly write-off by the times you use it per year? Or do you divide the yearly write-off by the times you potentially could use it per year? How do you take into account the wear and tear/loss of value of using it? Or is there some other way?

The machine is used in diagnostic medicine. I'm trying to calculate how much 1 test costs.

Is it just 2000/(Number of times used per year)?

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Correct approach: there is reliable information (from the vendor and/or from past experience), that the machine can perform $T$ number of tests in total before being scrapped or taken out of service. Then the cost of the machine per se allocated to the execution of one test is $10.000 / T$.

In the OP's case, a straight-line depreciation method is applied, writing-off $2.000$ per year. The problem here in the calculation $2.000/T_i$ for year $i$, is that next year, if the number of tests is more/less, one will get a different cost allocation of the value of the machine on a single test -and it will be misleading. So for economic-costing purposes this is not advised. But for purposes of reconciliation with accounting practice year-by-year, then one could accept the artificial variation, if one cannot apply the correct approach.

A mitigating approach, if historical data exist, is to take "average yearly tests performed", and divide $2.000$ with this average.

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For plain accounting purpose, @bobu5678 is a common practice.

If your intention is to justify something like Return On Investment(ROI), then this can be pretty tricky.

E.g.

  1. Maintenance cost, e.g. electricity, replacement parts, cleanup/lubricants.
  2. Should you rent the machine?
  3. The cost of the machine in the 1 year time spend versus outsource the products. Or can you do otherwise, take others people outsource to make full use of the machine.
  4. Upgrade and obsolescent

You can use conservative formula

(interest rates x purchase cost)/write-off period + write off rates + operating cost + maintenance cost) / total usage

Sometime you may need to add up tangible or intangible benefits.

So in business, tools usage costing is not as simple as purchase and divide.

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  • $\begingroup$ I'm trying to calculate the cost of a diagnostic test. The yearly write-off is 2000 dollars. Is it just 2000/number of tests done per year? $\endgroup$ – j1096707mvrhtnet Jul 28 '17 at 9:43
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Accounting guidelines determine how you amortize the cost of the machine, typically straight line over 5 years. Your cost per usage is a metric that you figure for your own purposes, you're mixing apples and oranges.

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  • $\begingroup$ I'm trying to calculate the cost of a diagnostic test. The yearly write-off is 2000 dollars. Is it just 2000/number of tests done per year? $\endgroup$ – j1096707mvrhtnet Jul 28 '17 at 9:43

protected by Kitsune Cavalry♦ Aug 27 '17 at 16:33

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