Question

The interval at which an asset should be replaced to minimize cost (or maximize worth) is known as the: ________

a. Equivalent uniform annual cost (EUAC).
b. Insider’s viewpoint approach.
c. Optimum replacement internal (ORI).
d. Outsider’s viewpoint approach.

Answer 1

Answer:

c. Optimum replacement interval (ORI)

Explanation:

Optimum replacement interval used to estimate the most cost effective time to replace an asset on the basis of their replacement cost.

There needs to be a balance between the replacement cost and the value that is being lost by changing the asset.

The useful value must be low to justify replacement cost.

For example if the cost of maintaining a machine has increased a lot as a result of wear and tear, it will be more cost effective to make a replacement in order to minimise cost and increase efficiency