Equipment Ownership Cost Notes

Equipment ownership costs are incurred whether or not the machine is operated. They
must be recovered by using the equipment profitability to do construction work.

Very Important note for Owning Cost – two methods

1. Exact Method – Use Discount cash flow method - engineering Economy Method
Peurify & schexnayder book, convert the cash flow to annually payment method,
such as initial cost and the salvage value (revenue) during equipment life and
calculated annually cost.
This annually cost should be recovered in each year so convert to hourly cost
No depredation and Capital Interest cost are involve in this Methos only
A. Purchase expenses (all options, shipping, and taxes less the cost of rubber
tires because tire cost will be computed separately as an element of
operating cost )
B. Salvage Value
C. Property taxes
D. Insurance
E. Storage and miscellaneous
F. Tax Saving from depreciation (I do not know what it is – look at nanny has a
good explanation – not applicable in Au)
G. Major Repairs and Overhauls (?)

2. Approximate Method
All books and references use this method
Depreciation Cost (It is the amount of money you must put away every year to be able to
replace the machine at the end of its expected life)
A. Investment (or interest) Cost – opportunity cost : lose interest on the money invested in
equipment if the unit was paid for in cash; investment cost represents the annual
cost(converted to an hourly cost) of the capital invested in a machine
Interest rate X the value of the equipment
The true investment cost for a specific year of ownership is properly calculated using
the average value of the equipment during that year
B. Insurance Cost
C. Taxes
D. Storages

Note: when the methods of engineering economics are sued, the depreciation and investment
component of equipment owning costs will be calculated as a single cost factor
It makes sense to me now.
 Mix of depreciation and interest cost =~ converting annualize value of purchase cost and
salvage value
I have to test whether they produce same result or not

Form Construction Equipment Guide

 By David A. Day, Neal B. H. Benjamin
Equipment Interest Cost – Average Investment
Fuel Cost

For truck/Van/Ute do not use table or based on HP. It should be based on annual kilometre and
consumption

Crane Truck: NPR400 Medium Premium Chassis Cab 7.5T GVM + Fassi Crane F50A

Jon Brisbane maintenance job

Estimate annual kilometre = 30000 km

Consumption Rate 19 litter/100km

Diesel @ $ 1.52/litter

Annual Use, assumed, 1700 hrs

Annual fuel cost = 30000 X 19/100 X 1.52

Fuel Cost per hour = Annual Fuel Cost/1700