The data collected in running a machine, the cost of which is Rs. 60,000, are given below: -

Year	1	2	3	4	5
Resale Value (Rs.)	42,000	30,000	20,400	14,400	9,650
Cost of spares (Rs.)	4,000	4,270	4,880	5,700	6,800
Cost of Labour (Rs.)	14,000	16,000	18,000	21,000	25,000

Determine the optimum period for replacement of the machine. -

Cost of machine ( C )= Rs. 60,000

Year	Resale value (S)	Purchase price resale value (C-S)	Cost of spares Cost of labour Total costs	Σ Costs Total costs (purchase price resale value + Σ costs)	Average annual cost
1	42000	18000	4000	14000	18000	18000	36000	36000
2	30000 …