dividing their unit costs by the respective estimates of the number of hours 
per year. These time estimates will be discussed in greater detail in the next 
paragraph. 
3.3 Cost Problems of Investment Items 
Investment items such as costs of equipment, computer software, 
buildings, land etc, present particular problems in the establishment of cost 
models since they embody stock costs which are only gradually released with 
time. Two aspects which thus require further consideration are those of 
amortisation or depreciation, and interest on capital investments. In dealing 
with these aspects, distinctions will have to be made between the type of 
organisation concerned (commercial or government) and the means by which 
the investment items are obtained (ie lease or hire, purchase with loaned 
funds, or with own funds), cost problems with leased equipment or office 
space being, of course, fairly trivial. 
The problem of amortisation or depreciation concerns the distribution 
of the initial purchase costs of an item over the total period of its use. It is 
thus of the utmost importance that a realistic estimate be made of the num- 
ber of years (n) the item is to be used in its present capacity or performance. 
Incorrect assumptions here will lead to biased decisions concerning the actual 
purchase and subsequent use of the item concerned. If n is too small, the 
resulting basic cost standards will be inflated due to the incorporation of an 
element of hidden profit, whilst the cost standards will be deflated if n is too 
large, leading to irrecoverable losses. In this context, mention can also be 
made of the bias introduced in cost standards if these are derived on the basis 
of a fiscal depreciation period instead of a commercial one. The difference 
between the two depreciation periods will only result in tax shifts, comparable 
to interest-free loans to or from the government, the effects of which could be 
incorporated into the cost standards. 
The convenience of having constant cost standards for equipment when 
planning over longer periods of time is evident. For example, if capital interest 
is neglected, the desired result is obtained with a linear depreciation of the 
equipment costs, ie average annual depreciation = i (purchase costs, including 
taxes, transport and installation). Confusion can, however, arise, particularly 
in periods of inflation, from the fact that the benefits experienced from