The cost of equipment is generally expressed as depreciation using the straight-line method. The assumption is that the instrument wears out over the years and at a uniform rate. Most often, 5 years is used for this period. Below is an example of determining the depreciation cost per test that can be used in the cost analysis:
Capital Equipment Straight-Line Depreciation (SLD)
Assumptions with SLD:
- Assets wear out at a uniform rate
- The value of money stays the same over time
Annual depreciation = total instrument cost/useful life of instrument in years
depreciation cost per test = annual depreciation/number of billable tests performed on the instrument
Example
The laboratory was considering purchasing an instrument that costs $120,000, has a 5-year useful life, and is projected to perform 6,000 annual reportable/billable tests.
Annual depreciation = $120,000/5 years = $24,000
Instrument cost per test = $24,000/6000 = $4.00
