10/1/2021

EQUIPMENT COST

Equipment Cost
 Ownership Costs:
 Depreciation cost
 Investment cost
 Insurance
 Interest
 Taxes
 Storage


 Operating Costs:
 Fuel and Lubrications & other supplies
 Maintenance
 Repairs
 Parts replacements (cutting edges, blades, …)
 Tire replacements
 Operator’s wages

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Equipment Cost
 Ownership Costs:
 A) Depreciation:
 Straight line method
 Declining balance method
 Sum-of-Years-Digits
 B) Investment Costs:
 Recovery of these charges (Insurance, Interest, Taxes, and
Storages) is based on percentages developed from
accounting records. The percentages of each cost is applied
to the average annual value. The average value of the
equipment during its useful life

Equipment Cost Owning Cost-Depreciation

Ownening Cost

Depreciation
Represents the decline in market value of an item of equipment due to age, wear,
deterioration, and obsolescence.

Method of Depreciation
1. Straight – line Method
 Uniform depreciation for each year of equipment life

FC - SV (-Tires)
Dn =
N

FC = Initial cost
SV = Salvage Value
N = Equipment Useful life
n = Year of life

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Equipment Cost Owning Cost-Depreciation

Example: Straight Line Depreciation Method

A Track Loader. FC = $50,000 & SV = $5,000

N = 5 years

Depreciable amount
Dn = 50,000 - 5000 = $9000/yr.
5

Year Dep. BV (End of Period)

0 0 50,000
1 9,000 41,000
2 9,000 32,000
3 9,000 23,000
4 9,000 14,000
5 9,000 5,000 SV

Equipment Cost Owning Cost-Depreciation

Double – Declining – Balance Method

2
Dn = f * BVn-1 f= New
N
1.5
n = 1, ….., N or = N Used

Year f Dep. BV
n
0 50,000
1 0.4 20,000 30,000
2 0.4 12,000 18,000
3 0.4 7,200 10,800
4 0.4 4,320 6,480
5 0.4 1,480 5,000

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Equipment Cost Owning Cost-Depreciation

Example: SOY Method

Sum-of-The-Years – Digits Method

Dn = (FC – SV)  ( N - n  1)
 SOY

Year Factor FC-SV Dep. BV

n
0 0 45,000 0 50,000
1 5/15 45,000 15,000 35,000
2 4/15 45,000 12,000 23,000
3 3/15 45,000 9,000 14,000
4 2/15 45,000 6,000 8,000
5 1/15 45,000 3,000 5,000

Equipment Cost Owning Cost-Investment

INVESTMENT COSTS

Represents the annual cost of capital invested in a machine.

Investment Cost = Interest Rate x AAV

Average Annual Value

FC * (N  1)
AAV =  SV  0
2xN

FC (n  1)  SV (N - 1)
AAV =
2x N

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Equipment Cost Owning Cost-Investment

Insurance
Cost of fire, theft, accident, and liability insurance for the equipment.

Insurance = % AAV
Taxes
Property Tax & License for the Eq.
Tax = Property Tax Rate x AAV

Storage
Cost of rent and maintenance for equipment storage yards and facilities, the wages of
guards and employees involved in handling equipment in and out of storage, and any
associated direct overhead cost.

Storage Cost = % of AAV

Interest = 8% of AAV
Insurance = % of AAV

Equipment Cost
 The average value of the equipment during its
useful life could be established as follows:
 Equipment FC = $25,000
 Estimated SL = 5 years SV = 0
 Use Straight line for depreciation.
 Average Annual Cost of Dep.
 =25,000/5 = $ 5,000

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Beg. of year Cum. Dep. BV Value of Eq.

1 0 25,000
2 5000 20,000
3 10000 15000
4 15000 10000
5 20000 5000
6 25000 0

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 Average Value = 75000/5 = 15000

 Average Value as % of FC
= 100 X (15000/25000) = 60%

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For our Example:

25,000 (5  1)
AAV = = $ 15,000
2 *5

FC - SV
SL * FC  SL (  SV)
AAV = SL
2 * SL

SL * FC  (FC - SV  SV * SL)
=
2 * SL

FC (SL  1)  SV (SL - 1)
=
2 * SL

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Equipment Cost
 Investment Costs
 Interest = 8% of AAV
 Insurance = 3% of AAV
 Taxes = 2% of AAV
 Storage= 2% of AAV
 __________
 15% of AAV
 For our Equipment, 25,000 with no salvage value
 The Annual Investment Cost = 15% x 15,000
 = $2250/yr.
 Owning Cost = Depreciation + Investment cost
 = 5,000 + 2250 = $7250/yr

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Equipment Cost Operating Costs

 Operating Costs :
 Under standard condition (barometric pressure of 29.9 in
of mercury at a temp. of 60oF) a gasoline engine will
consume approximately 0.06 gal. of fuel per flywheel
horsepower hour consume 0.04.
 A horsepower hour is a measure of the work performed by an
engine.
 Fuel consumed per hour = 0.06 gasoline x fWHP x Factor

 Fuel consumed per hour = 0.04 diesel x fWHP x Factor

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Equipment Cost Operating Costs

 Example: A power shovel with diesel engine rated at 160 fwhp used to
load trucks the engine may operate at average condition.


 Operating Condition Factor (%)

 Sever 90 – 100
 Average 60 – 80
Easy 50
 Fuel consumption = 0.04 x 160 x 0.7 = 4.48 gal/hr.
 Fuel cost = $ 0.9 /gal.
 Fuel cost of consumption = 4.48 x 0.9 = 4.03 $/hr.
 If you know the total operating hours (say the machine operates for 2000
hr/yr).
 Annual Fuel Cost = 4.03 * 2000 = 8064 $/yr.

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Equipment Cost Operating Costs

Lubricating Oil:

q = fwhp * f * 0.006 lb per fwhp - hr

7.4 lb per gal + C
t

Q = quantity consumed, gal/hr

Fwhp = rated horsepower of engine
C = capacity of crankcase, gal
T = number of hours between oil charges

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Equipment Cost Operating Costs

Example:

A 100-hp engine with crankcase capacity of 4 gal, requiring a change every 100 hr.
what is the quantity of lubricant consumed per hr.?

100 x 0.6 x 0.006 4

q = +
7.4 100

= 0.049 + 0.04 = 0.089 gal/hr.

If the lubricant cost is $1.70/gal.

 Lubricant cost is = 0.089 x 1.70 = 0.15 $/hr

If the operating hours is 2000 hr/yr.

 Lubricant cost is = 0.15 x 2000 = 300 $/yr.

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Equipment Cost Operating Costs

 Maintenance & Repair

 Service cost is a function of
 Type of equipment
 Service to which it is assigned
 Degree of care
 Maintenance & minor repair annual cost could be expressed as a
percentage of the annual cost of depreciation. Usually 100% of
the depreciation is assigned to maintenance and repair cost.
 Tire Costs = Use dep. Over the expected tires’ life.
 (Use straight line method)
 Repair : 0.15 x dep.
 Tire cost = Dep. + Repair

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Equipment Cost Example

 Example:
 Determine the probable cost per hr for owning and operating a 25-
cu-yd heaped capacity bottom-dump wagon with 6 rubber tires.
The following information is given:
 Engine 250 hp diesel
 Crankcase capacity, 14 gal.
 Time between oil changes, 80 hrs.
 Operating factor 0.6
 Useful life, SL, 5 yrs, no salvage value
 Life of tires.
 Repairs to tires, 15% of cost of depreciation of tires
 FC = $92,623 including freight and taxes
 Tires cost = 12,113

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Equipment Cost Example

Owning Cost:
Net Cost = FC – Tires
= 92,623 – 12,113 = $80,510

A) Depreciation = 80,510/5 = $16,102

B) Investment Cost

FC (SL  1) 92,623 (5  1)
AVV = =
2 x SL 10

= $55,744
Investment Cost = 55,744 x 0.15 = 8362

Owing Cost = 16,102 + 8362 = 24,464 $/yr.

Owning Cost/hr = 24,464/2000 = 12,232 $/hr.

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Equipment Cost Example

Operating Costs

- Fuel consumption = 0.04 x 250 x 0.6 = 6 gal/hr

Fuel cost = 6 x 0.5 = 3 $/hr.

- Lub.

250 x 0.6 x 0.006 14

q = + = 0.3 gal/hr.
7.4 80

Lub. Cost @ 1.60 $/gal = 0.3 x 1.6 = 0.48 $/hr.

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Equipment Cost Example

 Maintenance & Repairs

 Assume 100 % of Dep.
 Main repair cost = $16,102/yr
 Cost/hr = 16,102/2000 = $8.05/hr
 Tires
 Dep. = 12,113 5000 = $2.42/hr
 Tire repairs = 0.15 x 2.42 = 0.36 $/hr

 Total Operating Cost = 3 + 0.48 + 8.05 + 2.42 + 0.36

 = $14.31/hr + 5.75 Operator = 20.06

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Equipment Cost Example

 Owning & Operating Cost = 12.33 + 14.31 = 26.54 $/hr.

 + 5.75
 32.29
 Suppose you want to calculate how much you charge for using the
equipment.
 Hourly Charge = Ownership & Operating Cost
 + Hourly overhead cost
 + Profit (Marking)

 Cost of special items replacement costs for some parts (cutting edges,
blades …)
 Tire replacement
 Operator’s wages

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