Functional model for determining the optimal duration of use of fixed assets

Abstract

The purpose of this paper was to present a functional model for determining the duration of use of fixed assets based on the relationship between the average fixed cost of depreciation of the fixed medium and the opportunity cost determined by the market of the respective product. The objectives of the paper included: 1. determining the correlation between the duration of use, the total distance travelled and the price of fixed assets; 2. determining the optimal duration of use of the fixed assets based on the relationship between the average fixed cost and the opportunity cost. In order to determine the optimal duration of use, the minimum marginal cost of depreciation was calculated as the ratio of the difference between the prices between moments n and n + 1 and the length or kilometres travelled in the range n and n + 1. Also, the marginal opportunity cost for the remaining transport capacity to be used was determined starting from the hypothesis that the market assigns a price to a usable capacity and to a capacity too old to be used, the price is nil. As a result, we identified the average price for the maximum duration or distance of use. The marginal opportunity cost was determined as the ratio between the price at one point and the remaining difference to be used by kilometres or old. The remaining difference to be used was calculated as the difference between the maximum duration that can be used and the time at time i or the maximum distance travelled and the distance travelled at price i. The average cost with the depreciation of the fixed means analysed is determined by the distance travelled and its age. The proposed model allows to determine an optimal duration of use of the fixed means according to their age and the transport distance. This model can be easily adapted to other types of fixed assets and the quality of the results is given by the existence of a significant number of data on their selling prices.