~ original cost - total delivered cost
~ useful life - years equipment owned or used
~ tax law - recovery period & method of depreciation
Tax depreciation versus actual market value depreciation.
These tend to be quite divergent concepts & lead to two sets of books.
Depreciation does not involve cash flow except for the original cost & resale income.
Depreciation does not involve interest.
Depreciation is a noncash flow expense usually accounted for annually and usually tax deductible.
Depreciation is the loss in value of equipment resulting from use or age.
Investment costs - usually figured as a fixed percentage of equipment value.
The test for any equipment investment is what profit it will return.
The equipment must pay for itself through its use by earning enough to pay total O & O costs plus a profit.
Interest is paid on borrowed capital or forfeited on one’s own capital tied up in equipment. Note: a component of interest covers inflation.
Interest rate could be applied to equipment’s book value each year to fairly determine annual interest costs.
The reserve for depreciation recovers the equipment cost and also earns its own interest.
An average annual cost of interest could be figured. It is based on the equipment’s average book value over useful life (based on SL depreciation with zero resale).
Insurances and taxes are usually paid on equipment book value.
Average book value may be used for this purpose over the equipment’s useful life.
Storage & miscellaneous costs cover equipment security when not in use, overhead administrative expense, etc.
Cost ($/hr) = fuel consumption (gal/hr) × fuel cost ($/gal)
~ exact amount (by actual measurement)
~ approximate amount (full load, standard conditions)
• gasoline engine 0.06 gal/fwhp-hr *
• diesel engine 0.04 gal/fwhp-hr *
An operating factor is calculated or estimated to allow adjusting the fuel consumption for:
~ 2) time while operating but not at rated fwhp output.
Given: a diesel engine, power shovel CAT 160B LC (160 fwhp) operating at 50 min/hr. The dipper cycle time is 5 seconds and the total cycle time is 20 seconds. The power shovel uses maximum horsepower available during excavation and not more than half the hp available during the rest of the cycle.
Find the fuel consumed in 1 hour.
Solution: Engine Factor: Filling dipper =
Cost ($/hr) = oil consumption (gal/hr) × oil cost ($/gal)
Oil consumption is a function of:
~ engine condition (piston rings)
~ oil change frequency (50-200 hr range)
Oil consumption during operation - for approximate amount of use:
Any grease, transmission oil, etc., would be added.
Maintenance & Repair (M & R) is the most significant operating cost for most equipment.
~ service use experienced (application)
Average annual repair cost can be approximated as a fixed percent of the annual depre ciation or average hourly depreciation cost.
The fixed percent ranges from 80% to 120%.
This average method is inaccurate for early and late years of equipment life.
Never use an accelerated depreciation book value. This would yield cost vs. time info opposite from actual experience.
More accurate method for any given year would be to use a variable fraction of the lifetime repair cost.
Very significant cost for rubber-tired equipment.
Frequently, tires are deducted from original cost and treated separately because of their life span.
Tire replacement costs ($/hr):
~average life is in the range of 2,000 hrs to 5,000 hrs
Tire repair costs ($/hr) can be approximated as 15% of tire replacement costs ($/hr).
These are high wear items or other miscellaneous or unusual items not considered as nor mal M & R.
Figure as an hourly cost ($/hr).
~A hydraulic crane, diesel engine, truck-mounted, costs $170,000, including $20,000 for tires. Useful life is 6 years with a resale value of $30,000. Assume SL depreciation and estimate the average hourly O & O costs for the following condi tions:
• M & R (% of depreciation cost) 75%
• tire repair (% of tire replacement cost) 15%
• hours worked per year 2,000 hrs/yr
• rated horsepower (fly wheel hp) 350 hp
• time between oil changes 150 hrs
0.04 gal/fwhp-hr × 350 fwhp × 0.60 = 8.4 gal/hr
8.4 gal/hr × $1.20/gal = $10.08/hr
$20,000 replacement cost/3,200 hrs = $6.25/hr
• h. Total operating costs = $25.61/hr
• i. Operators wages = $11.50/hr
• j.
Total O & O costs |
($19.00 + | $25.61 + | $11.50) | =$56.11/hr |
| total ownership cost | total operational cost | operator's wages |
Problem:A piece of equipment costing $67,000 new, with a 7-year useful life and an expected salvage value of $7,000 is being considered for purchase. Calcu late the average yearly ownership costs using straight-line depreciation. Also, calculate the hourly ownership costs assuming the piece of equip ment will be utilized an average of 1,400 hours each year. Interest costs due to ownership costs, taxes, insurance and storage is at 20%.
This document was produced using an evaluation version of HTML Transit 2
