MACHINERY COST OP FARM OPERATIONS. 5 



METHOD OF COMPUTING MACHINERY REPLACEMENT COSTS. 



There are a number of ways in which replacement costs may be 

 computed and distributed, but a discussion of these methods and 

 their application to the various types of business and conditions 

 where they are in vogue would be out of place here. 



The method chosen as being best adapted for use on the farm con- 

 sists in charging off annually a part of the first cost of the implement 

 in proportion to its use on the farm and under field conditions. Thus 

 by reference to Table II for walking plows, the service rendered by a 

 plow that covers 15.6 acres annually is 12.5 years, so that the part 

 that should be set aside annually to provide for the replacement of 

 this plow (1-^12.5) is 8 per cent of the first cost of the plow. In 

 other words, the replacement charge per year, per acre, or per day 

 is based on proportional use and not on the market valuation or sale 

 price of the equipment at any time during its life. From the stand- 

 point of the man on the farm who expects to remain in the business, 

 this is a logical method to use. To the great majority of farmers, who 

 intend to continue in the farming business for periods exceeding the 

 duration of the life of their machinery, the tables which follow will 

 be found useful in estimating the machinery cost of proposed work 

 and the fair charge against work already done. To the man expecting 

 to discontinue farming and sell his machinery, or to the man negoti- 

 ating for the purchase of second-hand implements, knowledge of the 

 further units of work that may be expected from machinery that has 

 already performed a given amount will assist in determining its fair 

 value to both buyer and seller. 



METHOD OF COMPUTING THE INTEREST CHARGE. 1 



Where a part of the first cost of equipment is charged off annually 

 to provide for its replacement, the average investment upon which 

 interest must be allowed is shown in the schedule below: 



Traction of cost new 

 charged off annually. 



Average 

 invest- 

 ment (per 



cent of 

 first cost). 



Fraction of cost new 

 charged off annually. 



Average 

 invest- 

 ment (per 



cent of 

 first cost). 



Fraction of cost new 

 charged of! annually. 



Average 

 invest- 

 ment (per 



cent of 

 first cost). 



All 



100. 00 

 75.00 

 66.66 

 62.50 

 60.00 

 58.33 

 57.14 





56.25 

 55.55 

 55.00 

 54.54 

 54.17 

 53.84 

 53.57 





53.33 









53.12 







One-seventeenth 



One-eighteenth 



One-nineteenth 



One-twentieth 



52.93 







52.77 



One-fifth 





52.63 





One-thirteenth 



One-fourteenth 



52.50 











1 The average investment in equipment, where a fraction of its first cost is charged off each year for re- 

 years of service-)- 1. 



placement, may be found by the rule: Average investment=first costx 



years of service X 2 



