Calculate the total cost of technology in the first year

Question

A store has the technology cost components as follows:

- Total variable cost of the technology: $1,000

- One-time Installation in Store, paid at set-up: $10,200

- One-time integration with existing systems, paid at set up: $51,000

- Yearly technical support (fixed yearly cost, paid at set-up and then annually): $3,000

What is the total cost of technology for that store in the first year?

Pleas help me calculate this, the question does not specify any other information on the time. Therefore, I don't know whether I should add the one-time set-up costs to the first year's total cost or not.

gmatophobia · Answer

The problem statement has two types of costs -

1) Ongoing - Applicable for the first year and henceforth

a. Variable cost for technology: $1,000
b. Yearly technical support (fixed yearly cost, paid at set-up and then annually): $3,000

2) One-time - Only applicable for the first year

a. One-time Installation in Store, paid at set-up: $10,200
b. One-time integration with existing systems, paid at set up: $51,000

First year cost : $1000 + $3000 + $10200 + $51000 = $65,200

Kushchokhani · Answer

meichann

IMO We need to follow below steps:
1. capitalize the one-time cost 
2. estimate the useful life of the technology asset
3. amortize the cost over useful life of the asset following a reasonable basis i.e. SLM/WDV etc.

av1901 · Answer

Yes, you should add the one-time costs to the first year's cost. Because all the setup and integration actually happens in the beginning only which falls in the 1st year timeframe

Calculate the total cost of technology in the first year

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