Replacement cost

“ Justice BRANDEIS, have demonstrated that depreciation reserve, calculated on the basis of cost, has proven to be the most trustworthy guide in determining the amount required to replace, at the end of their useful life, the constantly shifting elements of a property such as the present. Costs of renewals made during the present prolonged period of high prices and diminishing replacement costs tend to offset the higher cost of replacing articles purchased in periods of lower prices. ”

“ Business men realized fully that the requirements for replacement might be more or less than the original cost. But they realized also that to attempt to make the depreciation account reflect economic conditions and changes would entail entry upon new fields of conjecture and prophecy which would defeat its purposes. For there is no basis in experience which can justify predicting whether a replacement, renewal or substitution falling in some future year will cost more or less than it would at present, or more or less than the unit cost when it was acquired. ”

“ If there is no surplus or redundant stock, so that more units of similar equipment are being newly produced every year either as an addition or in replacement, it is evident that marginal user cost will be calculable by reference to the amount by which the life or efficiency of the equipment will be shortened if it is used, and the current replacement cost. ”

“ It is part of the cost of the human machine.
“Repair is the course of partial reconstruction, replacement, or [Pg 90] renewal of worn or of injured portions, after the necessity therefor becomes apparent, and, unless brought about by accident, the need for the process is brought about by the failure or inability of maintenance, and also of up-keep, wholly to arrest the progress of decay by age or continued use. Provisions to preclude accident or to cover the cost of its results are part of the cost of repair. Health insurance of employees is a repair cost paid in advance.” ”

“ If the company calls something a betterment, and it is found that the betterment has only replaced something, it is not allowed, but is classed as maintenance; on the other hand, if the replacement is larger, and capable of rendering greater results, such as a larger engine, pipe, cable, etc., the cost, less the cost of what it replaces, is allowed as a betterment, and if the old part is sold the proceeds are deducted from the betterment charge, for if it is credited to maintenance, it increases the true net earnings. ”

“ Few people who have one or two cars can say exactly what a year’s operation costs, when depreciation, replacement and performance are figured. The cost of upkeep of any machine depends in a great measure upon the amount of time the owner himself devotes, or has devoted, to its care and the degree of skill employed. ”

“ According to right to repair advocates, however, many independent repair shops do not have access to replacement parts, diagnostics, and other resources that would enable them to complete the repairs in a cost-effective manner. [219]
For example, right to repair advocates maintain that where non-manufacturer replacement parts do not exist or their use is not feasible (i.e., because the product will no longer function if a non-OEM part is used) , manufacturers have effective monopolies on the repair of their product, allowing for repair costs to be more expensive than they could or should be. ”

“ Here the insurance companies had admitted their liability in the sum of $3,400 for furniture and fixtures and in the sum of $53,000 for the building, the latter amount being based upon what they insisted would be the cost of replacement. ”

“ Many engineers maintain that repairs are light during the early life of an asset and heavy during the later years. If this is true and these costs are charged to the period in which they are incurred, the combined depreciation and up-keep costs place an unjustly heavy burden on the output of the later years. Almost equally good authority maintains that the cost of repairs is in no sense uniformly graduated as implied above but can be counted upon in practice to be extremely irregular. ”

“ They urge that the current cost of maintaining the plant, whether by repair, renewals or replacements, should be treated as a part of the maintenance account, at least in systems consisting of large and diversified properties intended for continuous operation and requiring a constant level of efficiency. They insist that, in such systems, retirements, replacements and renewals attain a uniform rate and tend to be equal each year ”

“ Right now, one of the biggest costs facing auto manufacturers isn't the cars they make, it's the health care they provide. Health care costs make up $1,500 of the price of every GM car that's made - more than the cost of steel. ”

“ Depreciation is a reserve to equalize retirements and not a reserve to equalize replacements. A rate of depreciation based upon original cost, even, is little more than an intelligent guess; but based upon reproduction costs is the blindest kind of speculation. With the known original cost of a unit and an engineer's estimate of its service life and salvage value, * * * some semblance of accuracy might be reached. To guess its service life and salvage value is bad enough but who would venture to guess what it would cost to reproduce it ten or twenty years thereafter. ”

“ Insurance is charged on a basis of actual premiums paid, not on the basis of probable premiums three years hence; renton the amound actually paid, not on the problematical rate of the next lease, salaries, light, heat, power, supplies are all charged at actual, not upon a future contingent cost. ”

“ High maintenance and repair costs ate up many an automobile buyer in the early days of the craze. It wasn’t the original cost, although that was high enough; it was the upkeep.
Men of real ability—competent business men and expert engineers—got into the business, fortunately, largely for the rewards it promised, and by standardization and systematization brought the cost production down. ”

“ Jobs 2, 3, 4, and so on down the list, can cover the various subdivisions of shop expense, such as new small tools, repairs to tools, repairs to machinery, and as many detailed items as may be considered desirable. If expensive repairs are to be made to one of the large machines, it is desirable to keep a separate cost of same by assigning a special job number for the work, say Job 100, rather than throw the cost into one of the standing orders, where it is lost. ”

“ The Repair Association’s Gordon-Byrne stated at the Workshop that “right to repair allows for competition. It doesn’t guarantee anyone will win. It doesn’t guarantee that a lousy repair shop will stay in business, and it doesn’t mean that a lousy dealership will stay in business. It just means opportunity.” [243]
The submissions to the docket and discussion at the Workshop catalogued a variety of benefits independent repair provides to consumers, including access to local and timely repair, [244] competition in the cost of repairs, and access to repairs that manufacturers do not offer. ”

“ In other cases, neglect of repairs increases the expenses of repairs and cuts off future rental. The adages, "A stitch in time saves nine," and "An ounce of prevention is worth a pound of cure," must be acted upon in every industry. The neglect to repair a roof causes damage to an amount many times the cost of a new roof. Failure to replace a bolt costing five cents may result in the rack and ruin of a machine worth many dollars. A handful of earth on a dike may save a whole country from destruction. ”

“ At the renegotiation stage, where the prime contractor's actual cost experience is the basis for price redetermination, any kickbacks, paid by subcontractors and passed on to the prime contractor after the prime contract is awarded, will be passed on to the Government in the form of price redetermination upward. ”

“ The first is a change in the method of payment for car service to a compensation based upon time as well as mileage, which is commonly known as the "per diem plan."
This plan consists in paying for the use of all foreign cars a fixed sum per mile run, based on the supposed cost of repairs of the car, and a price per day based upon what is estimated to be a fair return for the interest on its value. This plan was originally suggested by a convention of car accountants, and was brought up and advocated by Mr. Fink, the Chairman of the Trunk Line Commission, in New York, in the fall of 1887. ”

“ Our international driving permit based upon the special license issued by the state was also secured for a small fee from the automobile club above mentioned.
Among the incidental expenses, the cost of repairs is apt to figure largely, particularly [Pg 219] when one is motoring along mountain highways. Such services are much cheaper in Europe than in the United States. In our case the item was so small as to be almost negligible. The car was so carefully overhauled and inspected before leaving the factory that we suffered little inconvenience or delay. ”

“ Thus difference might fairly arise as to when reserve accounts ought to be closed out, as to how much of the sum actually expended for maintenance within a given time was properly allocable to that period, and how much to later years; at what price renewals and replacements should be charged in view of the rapidly mounting cost of material; what factor of difference should be allowed for the efficiency of labor in the pre-war and postwar periods. ”

“ The balancing of the cost of repairs against the future income is a never-ending task in practical business. One making repairs must purchase the needed materials and labor at a capitalization determined by their expected earning-power in other industries. If the repairs in question will not ensure an annual saving as great as this expected rent, they will not be made. When an industry is declining, it may, for the sake of putting the capital into a better business, be good policy to let the machinery fall into bad repair. ”

“ When services are provided for the repair of any product, the supplier shall be considered implicitly bound to use adequate, new, original replacement parts, or those that maintain the manufacturer's technical specifications unless, otherwise authorized, as regards to the latter by the consumer. ”

“ Where the articles delivered are not what the contract calls for, as in the case of defective machines, the measure of the vendee's damages is what it would cost to supply the deficiency, without regard to the contract price. ”

“ The price of all the models was increased $100, with the exception of the roadster, which was increased only $75 and of the landaulet and town car, which were increased $150 and $200 respectively. We sold 18,664 cars, and then for 1910-1911, with the new facilities, I cut the touring car from $950 to $780 and we sold 34,528 cars. That is the beginning of the steady reduction in the price of the cars in the face of ever-increasing cost of materials and ever-higher wages. ”

“ But from the broader view of the manufacturer, all such inter-department repairs, or similar work, are a part of the operating expense of the plant, and are necessary for the up-keep of the equipment; they are not made for sale, as is a production order, and must be carried as expense—non-productive labor. ”

“ Unfortunately, when the wage-earner assumes the cost of operation he has the same sad experience. Needless to say his carrying charges are heavier than a generation ago, reflecting the higher prices of land, utilities, construction and finance. Worse still, interest charges, which form about one-half of the current expenses, are far higher, as pointed out above. Depreciation, which involves repairs, is higher, because repairs are chiefly an item of skilled labor. Taxes, whether national, state, county, or municipal, are excessive. ”

“ The manner in which heavy capital outlay for maintenance accompanies as well as partly accounts for a decline in the cost of conducting transportation on American roads, is graphically shown by the diagram on the next page. [41] During ten years a steady decline in direct operating costs has accompanied an equally marked upward tendency in expense of maintenance. The bearing of this on the problem of rate advances in future is direct. Profitableness results from two separate sources ”

“ For example, LKQ Corporation (“LKQ Corp.”) stated that in the automobile industry, where replacement parts have been generally available outside of manufacturers’ repair networks, several manufacturers, such as Volvo, limit the availability of key replacement parts to only their authorized repair networks. ”

“ Every machine should be charged with its full cost. Full cost is understood to include invoice price, insurance during transit, freight, duty, and drayage charges, and installation costs. The last item usually includes the platform or stand on which the machine is erected, with all costs in connection therewith, when special supports or platforms in addition to the regular factory floor are needed. ”

“ Due to the uncertainty of materials, supplies, labor conditions, etc., contractors have been unable to make satisfactory bids and on several occasions no satisfactory bids being received, the Commission undertook to do the work by day labor, in each case effecting a saving under the low bid.
In a few cases, either no bids being received or the ones received being considered excessive, work has been let on the cost plus basis with definite cost limit set, beyond which no percentage would be paid. ”