EOC Reading 39 Example 23-cost approach

Hi all, I am in general so confused by the cost approach, esp like this question. my first issue with this is

  1. why the cost approach used 25 million instead of 25 million to calculate the production cost? If you want to produce an identical asset shouldn’t it be 27 million which means you need high ceiling?

  2. When we talk about incurable physical depreciation, I understand we take a cut based on effective age to total physical depreciation, but why do we calculate this before discounting all the other obsolescence first, such as function, locational and etc?

Much appreciated