• The rig equipment was to be insured at an expected premium of $49,640 per year. The inspection cost of the tubulars was estimated to be $148,600 in the first year, which was expected to rise by 10 per cent every year thereafter. DPS was to generate its own electricity for running the equipment, while the fuel (costing approximately $10,000 per day) was to be provided directly by the client.
• Dover PS had two groups of personnelthe rig staff and the support staff. Salaries for the support staff and rig staff were expected to increase by 10 per cent each year. The head office building was rented at a cost of $11,000 per month and the expected utility expenses of the head office were projected to be $4,400 per month in the first year. After the commencement of the project, there were to be three operational rigs; therefore, the support staff costs, head office rent, and utility expenses were to be distributed among all three of them equally.
• Dover PS would enter into a three-year agreement with a local vendor to outsource the catering, at a rate of $1,800 per day. This rate would increase by 5 per cent per year. The safety and training department had put forward an estimated incremental cost of $65 per day for each of the three years. Similarly, the extra costs of guest housing as a result of commencing this project was estimated to be $105 per day for each of the three years.
• Dover PS planned to rent a coaster bus for transferring employees from the point of arrival (airport, train, or bus station) to the rig site. It also planned to rent a crane, forklift, and centrifuges. The total rental cost for all items was expected to be $820 per day. In addition, Dover PS anticipated that miscellaneous costs of the project would amount to $188,750 each year.
• The terms of reference in the contract specified that the client was to pay the expected mobilization fee, but the expected demobilization fee of $2,922,335 would be borne by Dover PS. To start the project, Dover PS estimated that mobilization of the rig from the stack yard to the site would take 30 days and that the expected cost would be $582,580. Keeping a margin of 32.6 per cent, Dover PS quoted a mobilization fee of $772,501.
• After taking into account the projected costs, Dover PS quoted an operating day rate of $22,000, and the contract required the day rate to remain constant during the firm commitment of the project. When asked what factors led to determining the exact day rate and mobilization fee, the accountant replied that at Dover PS they first calculated the total projected costs of the project, then set a price (day rate and mobilization fee)keeping in mind the target earnings before interest, taxes, depreciation, and amortization, and then finally used competitor intelligence to make sure that the set price was not higher than that of competitors. The exact prices quoted by the competitors were obviously unknown at the time of preparing the BSA. However, the managers could get a fair idea by looking at past rates and ongoing rates in the industry in the same country.

1.What is the total cost of the cost object?

2.Why use US dollars for calculations? What are the thoughts on the exchange rate impact on profits?