Life Cycle Cost

I’ve seen questions on a mock exam regarding life cycle costs…but in section 5.1 the video tutorial doesn’t explain the actual formula to calculate life cycle, just what it comprises of (first cost + maintenance + replacement + energy use). Is there a rule of thumb on how to calculate Life cycle costs?

There isn’t one specific calculation for life cycle costs. Its based on the info that you are given. So in some cases you would have first cost and depreciation but not energy use or replacement. Another question may provide a different mix of factors. The key is that any question you are likely to get would have some or all of those factors and ask you to either determine what the life cycle or replacement cost would be or ask you to compare two components of a project given some background info like the initial cost, the depreciated cost and the time frame of the depreciation.

One question I have seen in the testing material gives you the initial cost and depreciated cost of two building components and the time frame of the depreciation and ask you to determine which one had the greatest year over year depreciation.

So if you have two initial costs of $10,000 and $15,000 and the residual values after 9 years of depreciation is $1,000 for the first and for the second it is $2,000 after 10 years, you’d take the initial cost and subtract the residual cost and divide by the time frame. So:

$10,000 - $1,000 = $9,000/9 = $1,000
$15,000 - $2000 = $13,000/10 = $1,300

So the second one has a greater depreciation year over year.

That’s the kind of question you may see on the test. The questions are based on whatever aspects of life cycle costing are given in the question. So they are testing your ability to develop a math problem from the information given.