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Depreciation in Life Cycle Cost – Kaplan Exam kit – Volt Co (Mar 2019)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Depreciation in Life Cycle Cost – Kaplan Exam kit – Volt Co (Mar 2019)

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 25, 2020 at 9:59 pm #593115
    jassinghuk87
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    Hi John,

    I understand we add all the costs including depreciation to work out life cycle cost.
    However I came accross to this question in Kaplan exam kit where they have taken depreciation out of operating costs! Not sure where am I going wrong or may be I am not reading the question right.

    See below question:

    A nuclear station can generate 9,000 gigawatts of elecetricity in each of its 40 years of useful life. Operating Costs are $486m per year. Operating costs include a provision for depreciation of $175m per year to recover the $7000m cost of building the power station.

    Each nuclear station has an estimated decommissioning cost of $12,000m at the end of its life. The decommissioning cost relates to the cost of safety disposing of spent nuclear fuel.

    Calculate:
    What is the life cycle cost per gigawatt of the nuclear station (to the nearest $000) ?

    My answer came to $107,000 however Kaplan’s answer is $87,000.

    Much appreciate your help, Thanks in advance.
    Jas

    October 26, 2020 at 7:09 am #593127
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54831
    • ☆☆☆☆☆

    The depreciation of $175m is spreading the initial cost of $7,000m over 40 years (7,000 / 40 = 175)

    If you include the initial cost and the depreciation then you are including the $7,000 twice, which is wrong 🙂

    October 26, 2020 at 10:17 pm #593205
    jassinghuk87
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    That makes sense, thanks again 🙂

    October 27, 2020 at 9:03 am #593226
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54831
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Depreciation in Life Cycle Cost – Kaplan Exam kit – Volt Co (Mar 2019)’ is closed to new replies.

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