A contractor owns a crane that cost $120,000 with an expected life of 8 years and $20,000 salvage value. Using straight-line depreciation, what is the hourly ownership cost if the crane operates 1,200 hours annually?
Correct Answer
A) $10.42
Annual depreciation = ($120,000 - $20,000) ÷ 8 years = $12,500. Hourly depreciation cost = $12,500 ÷ 1,200 hours = $10.42.
Why This Is the Correct Answer
Option A correctly applies straight-line depreciation formula. The depreciable amount is $120,000 - $20,000 = $100,000. Annual depreciation is $100,000 ÷ 8 years = $12,500. Hourly ownership cost is $12,500 ÷ 1,200 hours = $10.42. This represents the depreciation cost per operating hour, which is a key component of equipment ownership costs.
Why the Other Options Are Wrong
Option B: $12.50
This answer of $12.50 likely results from dividing the total cost ($120,000) by 8 years to get $15,000 annually, then dividing by 1,200 hours. This incorrectly includes the salvage value in the depreciation calculation, which should be subtracted from the initial cost before calculating annual depreciation.
Option C: $15.00
This answer of $15.00 appears to come from dividing the annual cost ($15,000) by 1,000 hours instead of 1,200 hours, or using incorrect annual operating hours. It also fails to properly account for salvage value in the depreciation calculation.
Option D: $8.33
This answer of $8.33 likely results from calculation errors, possibly dividing $100,000 by 12,000 hours (10 years × 1,200 hours) instead of using the correct 8-year life span, or other mathematical mistakes in the depreciation formula application.
Memory Technique
Remember 'DASH' for Depreciation: Depreciable amount = Cost minus Salvage, Annual depreciation = Depreciable ÷ Life years, Subtract salvage first, Hourly rate = Annual ÷ operating hours.
More NASCLA Questions
How long should daily reports and project correspondence typically be retained after project completion?
Which AIA document contains the general conditions that govern the rights and responsibilities of all parties in a construction contract?
A construction company has direct labor costs of $85,000, direct materials of $120,000, and overhead costs of $45,000 for a project. What is the total job cost?
What is the primary purpose of job cost accounting in construction?
A construction company has current assets of $350,000 and current liabilities of $280,000. What is the company's working capital?
In CSI MasterFormat, which division covers earthwork and site preparation?
On an electrical plan, a rectangle with three parallel lines inside typically represents:
In a mechanical drawing, what does 'CFM' typically measure?
In CSI MasterFormat Division 08, which of the following would typically be included?
On a mechanical plan, what does the symbol 'RTU' typically indicate?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
A project has the following activities: A (5 days), B (3 days, starts after A), C (4 days, starts after A), D (2 days, starts after B and C). What is the total project duration?
Next Question
Under AIA A401, what is the standard timeframe for a subcontractor to submit payment applications to the general contractor?