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Cheat Sheet for Calculating Fixed and Other Costs

It is very important to note two things here first

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Unformatted text preview: a little easier. 1. Start with a listing and value of all machinery and implements used in the hay enterprise. 2. List the percentage of machine hours or amount of time this item is used in the enterprise. 3. Apply the percentages to the initial cost and salvage values. 4. You can then use numbers to determine depreciation, interest on average investment, and insurance and taxes for each item attributable to this enterprise. 5. Sum the total fixed costs for all items. This is your total machinery fixed cost for the hay enterprise. It is VERY important to note two things here. First, the depreciation we are using is economic or real depreciation as opposed to tax depreciation. The difference is that economic depreciation is often quite less than tax depreciation. When making an economic decision you should use economic depreciation to determine the actual loss in value from ownership. Secondly, the salvage values and useful life should reflect what you could sell the item for after you have used it. For instance, if you bought a used tractor for $15,000 and plan on keeping it seven years...
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