MeE-404.

ndustrial engineering Module 2

Module 2: Plant layout and Material handling- principles of material handling, Types of
material handling equipment, Selection and application. Preventive and break- down
maintenance - Replacement policy-- Methods of replacement analysis-Method of providing
for depreciation- Determination of economic life - Simple problems

*Introduction to Material Handling

• Material handling is the function of moving the right material to the right place in the
right time, in the right amount, in sequence, and in the right condition to minimize
production cost.
• Material handling is the art and science involving the movement, handling and storage
of materials during different stages of manufacturing.

* Goals/Objectives of Material Handling

• The primary goal is to reduce unit costs of production
• Maintain or improve product quality, reduce damage of materials
• Promote safety and improve working conditions
• Promote increased use of facilities
• Control inventory
• Increase productivity
• Better personnel utilization
• Improve system control
• Improve customer services

1 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Principles of Material Handling

Principle 1. Planning Principle

❖ All material handling and storage activities need to be planned to obtain
maximum overall operating efficiency.
❖ Material handling planning considers every move, every storage need and any
delay in order to minimize production costs.
Principle 2. Standardization Principle
❖ It is to standardize handling methods as well as types and sizes of handling equipment.
❖ Cost of material handling systems can be grouped into two categories: the cost of
ownership of the system (includes the initial purchase price and the subsequent
maintenance costs) and the cost of operation of the system (includes cost of training

2 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

personnel to use the system safely, energy cost and other direct and indirect costs
associated with the use of the system).

Principle 3. Work Principle

❖ The measure of work is material handling flow (volume, weight or count per unit of
time) multiplied by the distance moved.
Principle 4. Ergonomic Principle
Human capabilities and limitations must be recognized and respected
in the design of material handling tasks and equipment to ensure safe and effective operations.
Ergonomics is the science that seeks to adapt work or working conditions to suit the abilities
of the worker
Principle 5. Unit Load Principle
• Increase size, quantity, weights of the load handled. Since larger the load, lesser will be
the cost per unit handled.
Implementation activities:
▪ Handle unit loads
▪ Use containers
▪ Use standardized containers and pallets
Principle 6. Space Utilization Principle
Effective and efficient use must be made of all available space. Space
in material handling is three dimensional and therefore is counted as cubic space. Racks and
overhead conveyors are a few examples that promote this goal
Principle 7. System Principle
❖ Material movement and storage activities should be fully integrated to
form a coordinated, operational system that spans receiving, inspection, storage,
production, assembly, packaging, unitizing, order selection, shipping,
transportation and the handling of returns.
Principle 8. Automation Principle
❖ Material handling operations should be mechanized and/or automated
where feasible to improve operational efficiency, increase responsiveness,
improve consistency and predictability, decrease operating costs, and eliminate
repetitive or potentially unsafe manual labor.

3 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Principle 9. Environmental Principle

❖ Environmental impact and energy consumption should be considered as criteria
when designing or selecting alternative equipment and material handling
systems.

Principle 10. Life Cycle Cost Principle

A thorough economic analysis should account for the entire life cycle of all material
handling equipment and resulting system. Life cycle costs include all cash flows that occur
between the time the first dollar is spent to plan or get a new piece of equipment, or to put in
place a new method, until that method and/or equipment is totally replaced.
Life cycle costs include capital investment, installation, setup and equipment programming,
training, system testing and acceptance, operating (labor, utilities, etc.), maintenance and
repair, reuse value, and ultimate disposal

*Considerations in Material Handling System Design

1. Material Characteristics

Category Measures

Physical state Solid, liquid, or gas

Size Volume; length, width, height
Weight Weight per piece, weight per unit volume
Shape Long and flat, round, square, etc.
Condition Hot, cold, wet, etc.
Safety risk and risk of damage Explosive, flammable, toxic; fragile, etc.

4 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

2. Flow rate

3. Plant Layout

Layout Characteristics Typical MH Equipment

Type

Fixed – Large product size, low Cranes, hoists, industrial

position production rate trucks
Process Variation in product and Hand trucks, forklift
processing, low and trucks, AGVs
Product
medium production rates Conveyors for product
Limited product variety, flow, trucks to deliver
high production rate components to stations.

Basis of Selection of Material Handling Equipments:

1. Material to be Handled
2. Nature of Operations
3. Equipment Reliability
4. Distance over which the material is to be moved

5 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

5. Installation and operating costs

6. Engineering Factors
7. Plant Facility
Types of Material Handling Equipment:
1. Material handling equipments are classified under the following headings:
a) Manual
b) Powered

2. Broadly material handling equipment’s can be classified into two categories, namely:
(a) Fixed path equipments, and (b) Variable path equipments
Fixed path equipments which move in a fixed path. Conveyors, monorail devices and pulley
drive equipments belong to this category.
Variable path equipments have no restrictions in the direction of movement although their size
is a factor to be given due consideration trucks, forklifts mobile cranes andindustrial tractors
belong to this category

A.Transport Equipment.
• Equipment used to move material from one location to another (e.g., between
workplaces, between a loading dock and a storage area, etc.).
• The major subcategories of transport equipment are conveyors, cranes, and industrial
trucks. Material can also be transported manually using no equipment.
CONVEYORS
• Conveyors are useful for moving material between two fixed workstations, either
continuously or intermittently.
• They are mainly used for continuous or mass production operations—indeed ,they are
suitable for most operations where the flow is more or less steady.
• Conveyors may be of various types, with rollers, wheels or belts to help move the
material along: these may be power-driven or may roll freely.
• Large family of material transport equipment designed to move materials over fixed
paths, usually in large quantities or volumes
1. Non-powered

6 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

– Materials moved by human workers or by gravity

2. Powered
– Power mechanism for transporting materials is contained in the fixed path, using
chains, belts, rollers or other mechanical devices
Skate-Wheel Conveyor
• Similar in operation to roller conveyor but use skate wheels instead of rollers
• Lighter weight and unpowered
• Sometimes built as portable units that can be used for loading and unloading truck
trailers in shipping and receiving

Roller Conveyor
• Pathway consists of a series of rollers that are perpendicular to direction of travel
• Loads must possess a flat bottom to span several rollers
• Powered rollers rotate to drive the loads forward
• Un-powered roller conveyors also available

7 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Belt Conveyor
• Continuous loop with forward path to move loads
• Belt is made of reinforced elastomer
• Support slider or rollers used to support forward loop
• Two common forms:
– Flat belt (shown)
– V-shaped for bulk materials

8 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Jib Crane
• A crane is a type of machine, generally equipped with a hoist, wire ropes or chains
and sheaves, that can be used both to lift and lower materials and to move them
horizontally.
• It is mainly used for lifting heavy things and transporting them to other places.
• It uses one or more simple machines to create mechanical advantage and thus move
loads beyond the normal capability of a human.
• Cranes are commonly employed in the transport industry for the loading and unloading,
in the construction industry for the movement of materials and in the manufacturing
industry for the assembling of heavy equipment

Bridge crane
• An overhead crane, commonly called a bridge crane, is a type of crane found in
industrial environments.
• An overhead crane consists of parallel runways with a traveling bridge spanning the
gap.
• A hoist, the lifting component of a crane, travels along the bridge.
• If the bridge is rigidly supported on two or more legs running on a fixed rail at ground
level, the crane is called a gantry crane.

9 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Hand Truck
• A hand truck, also known as a two wheeler, stack truck, trolley, trolley truck, sack
barrow, sack truck, dolly, or bag barrow, is an L-shaped box-moving handcart with
handles at one end, wheels at the base, with a small ledge to set objects on, flat against
the floor when the hand-truck is upright.
• The objects to be moved are tilted forward, the ledge is inserted underneath them, and
the objects allowed to tilt back and rest on the ledge.
• Then the truck and object are tilted backward until the weight is balanced over the large
wheels, making otherwise bulky and heavy objects easier to move. It is a first class
lever

Walkie Truck
• Wheeled forks insert into pallet openings
• No provision for riding; truck is steered by worker using control handle at front of
vehicle

10 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

B.Positioning Equipment.
• Equipment used to handle material at a single location so that it is in the correct position
for subsequent handling, machining, transport, or storage.
• Unlike transport equipment, positioning equipment is usually used for handling at a
single workplace.
• Material can also be positioned manually using no equipment.
• As compared to manual handling, the use of positioning equipment can provide the
following benefits
• raise the productivity of each worker when the frequency of handling is high,
• improve product quality and limit damage to materials and equipment when the
item handled is heavy to hold and damage is likely through human error or
inattention,
• And reduce fatigue and injuries when the environment is hazardous or
inaccessible
Lift/Tilt/Turn Table

Dock Leveler

11 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

C. Unit Load Formation Equipment.

• Equipment used to restrict materials so that they maintain their integrity when handled
a single load during transport and for storage. If materials are self-restraining
• (e.g., a single part or interlocking parts), then they can be formed into a unit load with
no equipment.
Advantages of unit loads:
o More items can be handled at the same time, thereby reducing the
number of trips required and, potentially, reducing handling costs,
loading and unloading times, and product damage.
o Enables the use of standardized material handling equipment.
Disadvantages of unit loads:
o Time spent forming and breaking down the unit load.
o Cost of containers/pallets and other load restraining materials used in the unit
load
o Empty containers/pallets may need to be returned to their point of origin.
Pallets

Slip Sheets

12 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Tote Pans

D.Identification and Control Equipment.

• Equipment used to collect and communicate the information that is used to coordinate
the flow of materials within a facility and between a facility and its suppliers and
customers.
• The identification of materials and associated control can be performed manually with
no specialized equipment.
Bar Codes

 Unique bar/space patterns represent various alphanumeric characters

 Bar code system consists of bar code label, bar code scanner, and bar code printer
 Contact bar code scanners use pen or wand to read labels
 Non-contact bar code scanners include fixed beam, moving beam, and omni-directional
 1-D codes are most common; 2-D codes enable much greater data storage capability
Radio Frequency (RF) Tag
⧫ Data encoded on chip encased in a tag
⧫ Non-contact: can be read when the tag is within 30 ft. of an antenna

13 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

⧫ Tags can either be attached to a container, or permanently or temporarily to an item

⧫ RF tags have greater data storage capability than bar codes
Magnetic Stripe
⧫ Data encoded on a magnetic stripe that is readable in almost any environment
⧫ Requires contact with a reader
⧫ Greater storage capability and more expensive than bar codes
E.Storage Equipment.
• Equipment used for holding or buffering materials over a period of time.
• Some storage equipment may include the transport of materials (e.g., the S/R machines
of an AS/RS, or storage carousels).
• If materials are block stacked directly on the floor, then no storage equipment is
required.
Selective Pallet Rack

Drive-Through Rack

14 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

*Plant Layout and its Types

Plant layout ideally involves allocation of space and arrangement of
equipment in such a manner that overall operating costs are minimized”.
Objectives of Layout
• Efficient utilization of available floor space
• To ensure that work proceeds from one point to another point without any delay
• Provide enough production capacity.
• Reduce material handling costs
• Reduce hazards to personnel
• Utilize labor efficiently
• Increase employee moral.
• Reduce accidents
• Provide ease of supervision and control
• Provide for employee safety and health
• Allow ease of maintenance
• Allow high machine or equipment utilization
• Improve productivity

Layout for manufacturing facilities

The basic types of layouts for manufacturing facilities are
• Process layout
• product layout
• Fixed position layout
• combination layout.

1. Process layouts ( functional layouts, or job shops)

• Process Layout are designed to accommodate variety in product designs and small
batches .Process layout use general –purpose machines that can be changed over rapidly
to new operations for different product designs. these machines are usually arranged
according to type of process being performed
for example , all machining would be in one department ,all assembly in anther department
,and all painting in anther department ,the materials –handling equipment generally

15 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

consists of forklift trucks and other mobile vehicles that allow for the variety of paths
followed through the facility by the products produced.
• The workers must change and adapt quickly to the multitude of operations to be
performed on each unique batch of products being produced. These workers must be
highly skilled & require intensive job instructions And technical supervision

ADVANTAGES OF PROCESS LAYOUT

1. Lower initial capital investment in machines and equipment. There is high degree of
machine utilization, as a machine is not blocked for a single product
2. Change in output design and volume can be more easily adapted to the output of variety
of products.
3. Breakdown of one machine does not result in complete work stoppage
4. Supervision can be more effective and specialized
5. There is a greater flexibility of scope for expansion

16 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

DISADVANTAGES OF PROCESS LAYOUT

• Material handling costs are high due to backtracking
• More skilled labour is required resulting in higher cost.
• Time gap or lag in production is higher.
• Work in progress inventory is high needing greater storage space.
• More frequent inspection is needed which results in costly supervision

2. Product layout(production lines or assembly lines)

• Product layout are designed to accommodate only a few product designs. the
machinery or equipment is arranged to ensure continuous flow of material in an
orderly mode throughout the plant.
• examples of product layout, Paper mills, dairies, cement factories, and
automotive assembly plants , Auto manufacturing.
• product layout use specialized machines that are set up once to perform a specific
operation for a long period of time on one product, this machines requires great
expense and long down times To change over to a new product design.
• companies that produce only a few product types often set up a different
production line for each product type. The facility layout would allow for the
different product lines to separated from each other.

17 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

ADVANTAGES OF PRODUCT LAYOUT

1. Low cost of material handling, due to straight and short route and absence of
backtracking.
2. Smooth and uninterrupted operations
3. Continuous flow of work
4. Lesser investment in inventory and work in progress
5. Optimum use of floor space
6. Shorter processing time or quicker output
7. Simple and effective inspection of work and simplified production control
8. Lower cost of manufacturing per unit
DISADVANTAGES OF PRODUCT LAYOUT
1. High initial capital investment in special purpose machine
2. Heavy overhead charges
3. Breakdown of one machine will hamper the whole production process
4. Lesser flexibility as specially laid out for particular product.

3. Fixed (position) layout:

•
This type of layout is the least important for today’s manufacturing industries.
•
In this type of layout the major component remain in a fixed location, other
materials, parts, tools, machinery, man power and other supporting equipment’s
are brought to this location.
• Eg: Ship building, Dam construction, flyover construction
• The major component or body of the product remain in a fixed position because
it is too heavy or too big and as such it is economical and convenient to bring the
necessary tools and equipment’s to work place along with the man power.
• This type of layout is used in the manufacture of boilers, hydraulic and steam
turbines and ships etc
ADAVANTAGES OF FIXED POSITION LAYOUT
1. It saves time and cost involved on the movement of work from one workstation to
another.
2. The layout is flexible as change in job design and operation sequence can be easily
incorporated.
3. It is more economical when several orders in different stages of progress are being
executed simultaneously.
4. Adjustments can be made to meet shortage of materials or absence of workers by
changing the sequence of operations

18 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

DISADVANTAGES OF FIXED POSITION LAYOUT

• Production period being very long, capital investment is very heavy
• Very large space is required for storage of material and equipment near the product.
• As several operations are often carried out simultaneously, there is possibility of
confusion and conflicts among different workgroups.

4.COMBINED OR GROUP LAYOUT

• Certain manufacturing units may require combination of product and process layouts.
• In most of industries, only a product layout or process layout or fixed location layout
does not exist. Thus, in manufacturing concerns where several products are produced
in repeated numbers.
• Generally, a combination of the product and process layout or other combination are
found in practice
• e.g. for industries involving the fabrication of parts and assembly, fabrication tends to
employ the process layout, while the assembly areas often employ the product layout.
• In soap, manufacturing plant, the machinery manufacturing soap is arranged on the
product line principle, but ancillary services such as heating, the manufacturing of
glycerin, the power house, the water treatment plant etc. are arranged on a functional
basis

Maintenance
Plant maintenance is an important service function of an efficient production system. It
helps in maintaining and increasing the operational efficiency of plant facilities. Maintenance
is the procedure of finding the faults in any equipment/Machine and also removal of fault. It
may be before the breakdown or after the breakdown. Plant maintenance usually refers to the
methods, strategies, and practices used to keep an industrial factory running efficiently. This
can include anything from regular checks of equipment to make sure they are functioning
properly. The general aim of plant maintenance is to create a productive working environment
that is also safe for workers.
Maintenance Objectives
• To increase functional reliability of production facilities.
• To maximize the useful life of the equipment.
• To maximize production capacity from the given equipment.
• To minimize the total production cost.
• To minimize the frequency of interruption in production by reducing breakdowns.
• To enhance the safety of the manpower

19 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Importance of maintenance
 It helps in identify the cause of failure, e.g whether the failure is due to design defect,
or a wear out failure.
 It also helps in deciding the type of maintenance and maintenance decision like
replace and repair.
 It provides the necessary information regarding the life and reliability of the
equipment.
Types Of Maintenance
1. Breakdown maintenance
2. Preventive maintenance
 Periodic maintenance ( Time based maintenance - TBM)
 Predictive maintenance
3. Corrective maintenance
1.Break Down Maintenance
 It means that people waits until equipment fails and repair it.
 Such a thing could be used when the equipment failure does not significantly affect
the operation or production or generate any significant loss other than repair cost
2.Preventive maintenance
 It is a daily maintenance ( cleaning, inspection, oiling and re-tightening ), design to
retain the healthy condition of equipment and prevent failure through, periodic
inspection or equipment condition diagnosis, to measure deterioration.
 It is further divided into periodic maintenance and predictive maintenance.
 Just like human life is extended by preventive medicine, the equipment service life can
be prolonged by doing preventive maintenance
Periodic maintenance

It is a time based maintenance consists of periodically inspecting,

servicing and cleaning equipment and replacing parts to prevent sudden failure and process
problems
Predictive maintenance

This is a method in which the service life of important part is predicted based
on inspection or diagnosis, in order to use the parts to the limit of their service life.
Compared to periodic maintenance, predictive maintenance is condition based
maintenance. It manages trend values, by measuring and analyzing data about
deterioration.

20 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

3.Corrective maintenance
It improves equipment and its components so that preventive maintenance can
be carried out reliably. Equipment with design weakness must be redesigned to improve
reliability or improving maintainability.

Replacement Analysis
• A firm has to face three types of replacement decisions:
➢ The replacement of capital equipment
➢ The equipment required for expansion
➢ The displacement of old technology by the new
Reasons for replacement of equipment
The main reasons are
1) Deterioration
2) Obsolescence
3) Inadequacy
4) Working conditions

Reasons for replacement of equipment

1)Deterioration: It becomes necessary to replace the machine when it wears out and does not
function properly.Such machinery start lowering the quality of product, decreasing the
production and increase in labor and maintenance cost
2) Obsolescence: Whenever new equipment comes in the market , which is capable of
producing more products of good quality with less labour and has more efficiency, the existing
machine is to be replaced with this machine
3)Inadequacy: The equipment does not have sufficient capacity to meet the present demands.
4)Working conditions:To take replacement decesion,working conditions are also responsible.
Machinery yielding more smoke or noise may cause pollution and accidents. Such machinery
needs replacement

Equipment replacement policy

• Large no. of factors are responsible to replace the equipment before the expiry of the
estimated life
a) To reduce the production cost
b) To raise quality
c) To reduce fatigue

21 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

d) To increase output
e) To secure great convenience, safety and reliability

Sunk cost in replacement

• any past cost unaffected by any future decisions
• costs already incurred in a project that cannot be changed by present or future actions.
For example, if a company bought a piece of machinery five years ago, that amount of money
has already been spent and cannot be recovered. It should also not affect the company’s
decision on whether or not to buy a new piece of machinery if the five-year old machinery has
worn out

FACTORS TO BE CONSIDERED FOR REPLACING EQUIPMENTS

• Two main factors are:
1. Technical factors
2. Financial factors
1.Technical factors: They consider
➢ Whether the present equipment has deteriorated
➢ Is the present equipment inadequate in meeting production rate
➢ Can present equipment provide required surface finish
➢ Is the present equipment make noise and vibrations
➢ Does the present equipment increase accidents

22 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

➢ How often the existing equipment needs maintenance and repairs

2. Financial factors:They are
➢ The initial cost of challenger
➢ Operating expenses: They include
• Direct and indirect labour cost
• Direct and indirect material cost
• Power
• Maintenance cost
• Cost of replacing parts
• Insurance
• Interest on invested capital
➢ Expected salvage value at the end of the service life

Physical life
It defined as the time period that is elapsed between initial purchase (i.e. original
acquisition) and final disposal or abandonment of the asset.

Economic life or useful life

It is defined as the time period that minimizes the total cost (i.e. ownership cost plus
operating cost) of an asset. It is the time period that results in minimum equivalent uniform
annual worth of the total cost of the asset.

23 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

Methods for replacement studies

1. Pay back period method
2. Total life average method
3. Annual cost method
4. Present worth method
5. Rate of return method
6. M.A.P.I Method (Machinery and Allied Products Institute of Washington)

DEPRECIATION
It represents the reduction in market value of an asset due to age, wear and tear and
obsolescence. Depreciation represents a systematic allocation of the cost of a fixed asset that
is in service over its estimated life. Depreciation has no direct effect on cash.

Common Terms used in Depreciation Analysis

1 .Initial cost: It is the total cost of acquiring the asset.
2. Salvage value: It represents estimated market value of the asset at the end of its useful life.
It is the expected cash inflow that the owner of the asset will receive by disposing it at the end
of useful life.
3. Book value : It is the value of asset recorded on the accounting books of the firm at a given
time period. It is generally calculated at the end of each year. Book value at the end of a given
year equals the initial cost less the total depreciation amount till that year.
4. Useful life : It represents the expected number of years the asset is useful in terms of
generating revenue. The asset may still be in working condition after the useful life but it may
not be economical. Useful life is also known as depreciable life. The asset is depreciated over
its useful life.

Depreciation methods
1. straight-line depreciation method
2. declining balance method
3. sum-of-years-digits method

4. Sinking fund method

1.straight-line depreciation method

 It is the simplest method of depreciation.

24 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

 In this method it is assumed that the book value of an asset will decrease by same
amount every year over the useful life till its salvage value is reached.
 In other words the book value of the asset decreases at a linear rate with the time
period

25 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

2.declining balance method

 In this method the annual depreciation is expressed as a fixed percentage of the book
value at the beginning of the year and is calculated by multiplying the book value at the
beginning of each year with a fixed percentage.
 Thus this method is also sometimes known as fixed percentage method of depreciation.

3.sum-of-years-digits method
 It is also an accelerated depreciation method.
 In this method the annual depreciation rate for any year is calculated by dividing the
number of years left (from the beginning of that year for which the depreciation is
calculated) in the useful life of the asset by the sum of years over the useful life

26 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College

MeE-404.ndustrial engineering Module 2

4.sinking fund method.

 In this method it is assumed that money is deposited in a sinking fund over the useful
life that will enable to replace the asset at the end of its useful life.
 Thus the annual depreciation in any year has two components.
 The first component is the fixed sum that is deposited into the sinking fund and the
second component is the interest earned on the amount accumulated in sinking fund till
the beginning of that year.

27 | Sonia S. Raj (9400913224) , Dept. of Mechanical Engineering, Marian Engineering College