COST OF OWNING AND OPERATING

CONSTRUCTION EQUIPMENT
1. Factors affecting the cost include:
 Cost of equipment delivered to the owner.
 The severity of the conditions under which it is used.
 The care with which it is maintained and repaired.
 The number of hours used.
 The demand for used equipment (salvage value = SV)

2. Estimate Cots: includes

a) - Depreciation Costs.
b) – Maintenance & Repair.
c) – Investment cost.
d) – Fuel consumption.
e) – Lubricating Oil.

a- Depreciation Costs:

Depreciation is the loss in value of equipment resulting from use or age

(useful life). Assume a unit of equipment will decrease in value from its
original total cost at a uniform rate. There are 3 three methods for
influential the cost of depreciation.

i. Straight Line Method.

ii. Declining – Balance Method.
iii. Sum of the Years Digit Method.

For example:
Original cost $12,000
Useful life per year "working due " 2,000 hr / yr
Salvage Value after 5 yrs. $2,0000

1-straight line method :

 Total dep. = original cost – salvage value

→ 12000 – 2000 = $ 10,000

Annual dep. Cost = $ 10,000 / 5 yrs. = 2000 $/ yr.

Hourly dep. Cost = $ 2,000 / 2000 hr =$ 1 / hr

Widely used method.

2- Declining – Balance Method.

Blue for multiplication arithmetic

RED for subtraction arithmetic

As we see the final salvage value at end of 5th. Yr. doesn't

match the expected or what must it be.
So this method is not recommended.

3-Sum of the Years Digit Method.

 $
% Dep. For current
End of year
Depreciation Total year
Book Value $
Dep.
0 0 10000.00 0.00 12000.00
1 0.33333 10000.00 3333.33 8666.67
2 0.26667 10000.00 2666.67 6000.00

3 0.2 10000.00 2000.00 4000.00

4 0.13333 10000.00 1333.33 2666.67

5 0.06667 0.00 666.67 2000.00

∑15

First we sum end of year digits, in the above example they

sum to {15}, then we predict the depreciation via dividing in
reverse way, in other words every year takes its due of
depreciation that the first of the five years would come 5/15
and so do.

Depreciation % = Dep. factor

1 2 3 4 5 ∑15
Dep.
factor
5/15 4/15 3/15 2/15 1/15
/
/
/
/
/
/
/
/

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b– Maintenance & Repair.

 Vary with the type , the service and the care.

 Expressed as a % of annual cost of depreciation
 Experience records serve as a guide in estimating these costs.

c– Investment cost.
Includes interest on the money invested, taxes of all types , insurance and storage as a %
of ~ 15-25%.

For example:
Original cost $ 25 , 000
Useful life = age of equipment till being 5 yrs.
garbage
Salvage value after 5 yrs. $0

Beginning of Year Cumulative depreciation. Value of Equipment

$
1 0 25,000
2 5,000 20,000
3 10,000 15,000
4 15,000 10,000
5 20,000 5,000
6 25,000 0

Total values of equipment = $ 75,000

Average value = 75,000 / 5 =$ 15,000
Average value as a % of original cost = (15,000)x1000 /25,000 = 60 %

CASE 1.
WITHOUT SALVAGE VALUE
 P
Book Value

P/n

1 2 3 4 n
Life in years with no salvage value

AVERAGE VALUE ( Pav. )

Pav. = P (n+1) / 2n
 Annual investment cost

Inv. Costs = Pav. X inv. Rate (%)

CASE 2.
SALVAGE VALUE CONSIDERED :
Book Value

P
Book value

( P-S)/ n {( P-S)/ n}+ S

0 1 2 3 4 n
Life in years WITH SALAVAGE VALUE
  Pav. = {P(n+1) + S(n-1)} / 2n

 average annual investment cost :

Inv. Costs = Pav. X Inv. Rate (%)

d– Fuel consumption.
Two types of engines used in construction equipments:
Gasoline and Diesel engines.

 Gasoline engine consumption =0.06 gal / hp. hr.

 Diesel engine consumption =0.04 gal / hp. hr.

For example:

A power shovel with a diesel engine rated at 160 fwhp. When used to load trucks, the engine may
operate at a max power while filling the dipper, requiring 5 sec. out of a cycle time of 20 sec. during
the other 15 sec. the engine may operate at not more than one half of its rated power . assume that the
shovel operates 50 min per hour.
- Calculate the diesel consumed per hour.

Solution:
To do that we need to have , the engine factor and the time factor, the operating factor

Engine factor:
Filling the dipper = (5 / 20) * 1 =0.250
Rest of cycle = (15 / 20) * 1/2 = 0.375

 Total engine factor = 0.625

Time factor = (50 / 60) = 0.833

Operating factor = 0.625 * 0.833 = 0.520

 Fuel consumed per hour = operating factor * engine fwhp * engine type factor
= 0.520 x 160 x 0.04

= 3.33 gal / hr.

e– Lubricating Oil.

hp x f x0.006 lb/hp.hr c
q = +
7.4 lb/gal t

q = quantity assumed, gal / hr.

hp. = rated horse power for engine.
c. = capacity of crankcase, gal
f. =operating factor
t. = # no. of hours between changes.

The above formula based on :

An operating factor of 60 %
Quantity of oil consumed per rated horsepower hour, between changes, will be 0.006 lb.

For example:

Engine =100 hp.

Crankcase capacity = 4 gal.
Operating factor = 60 %
Number of hours between changes = 100 hr.


100 x 0.6x0.006 lb/hp.hr 4

q = +
7.4 lb/gal 100
=0.049 + .04 = 0.089 gal / hr.

Example:
Determine the probable cost per hour for owning and operating a 25 cu-yd heaped
capacity bottom dumb wagon with six rubber tires, the following information will
apply:

Engine 250 hp, Diesel.

Crankcase capacity 14 gallon
Time between oil changes 80 hr
Operating factor 60 %
Useful life 5 years – 2000 hr/yr – with no salvage value
Life of tires 5,000 hr
Repair of tires 15% of tire depreciation
Cost delivered including freight and taxes = $ 92,623
Cost of tires =$ 12,113
M & R = 50% OF Depreciation
Investment rate = 15%

1- fuel consumed per hr = 250 * 0.6 * 0.04 = 6.0 gal

2- lubricating oil consumed per hr:

250 x 0.6x0.006 lb/hp.hr 14

q = +
7.4 lb/gal 80
=0.3 gal / hr
3-Cost to owner:-
Cost delivered including freight and taxes = $ 92,623
Less cost of tires = ($ 12,113)
Net cost less tires = $ 80,510

Average cost Pav. = P(n+1)/2n = 92,623 (5+1)/2*5 = $ 55,744

no salvage value case

4-Annual cost:-
Depreciation = (80,510 – SV) / 5 = $ 16,102
Maintenance and Repair = 50% * 15,102 = $ 8,051
Investment = 15% * Pav. =$ 8,362
Total annual fixed costs = $ 32,515

5-Hourly cost:-
Fixed cost = 32,515 / 2000 hr = $ 16.26
Tire depreciation =12,113 / 5,000 = $ 02.42
Tire repairs = 0.15 * 2.42 = $ 00.36
Fuel = $4 * 6 gal = $ 24.00
Lubricating oil = 0.3 * $15 = $ 04.50
Total cost per hour... Excluding labor = $ 47.54

Say the labor takes $10/ hr

Then the total cost = $57.54

You must add profit margin

By about 10 to 15 % or if you want to
make favour with people and just take
the cost .. and run the job on you ..
HAHAHAHAHAHAH

NEXT...
- RENT OR PURCHAUSE
EQUIPMENT.
- PREDICTION OF ECONOMIC
LIFE CYCLE OF EQUIPMENT