1931-01-01

Controlling Factors in Machine-Tool Obsolescence 310045

IN THIS PAPER, obsolescence is considered as concerning the economic value of a machine regardless of its physical condition or age. Improved machinery may make a tool obsolete while it is relatively new. Distinctions are drawn between obsolescence, depreciation and amortization, and a list of controlling and contributing factors in obsolescence is given.
Objection is made to the lumping of obsolescence and depreciation in a single charge, which apparently is not great enough to cover obsolescence with the present accelerated rate of machine-tool progress.
Three examples are given of formulas or methods of determining the economic advisability of purchasing new equipment, and their use is illustrated by being applied to a set of assumed conditions. Yield, risk and liquidity are said to control investments in new equipment, the same as any other investments.
Discusssion* was presented, mainly by leaders of the machine-tool industry, who advocated improved accounting procedure to give accurate costs. It was said that such accounting would show up wastes and distinguish obsolete equipment. Representatives of one machine-tool group described their method of presenting a balance-sheet showing the economies to be effected by proposed new equipment. The advantages of the standardized system of cost accounting, which has been developed by the National Machine Tool Builders' Association and is being adopted by many machine-tool builders, were presented.
One of the co-authors made strenuous objection to accounting methods which impose excessive burden on the production department for overhead on machine-tools which are of much less actual economic value in production, because of little use or other reasons, than their book value indicates. Attention was called to a feature of the standardized accounting system which discloses short-time utilization of any machine.
In the closure, the production man was said to share with the cost accountant the blame for the failure of accounting systems to give information that is needed by management to show some of the big items in the profit and loss column.

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