ECONOMICAL ASPECTS

OF
HANDLING EQUIPMENT

HOURLY WORKING RATE

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 Principles and techniques of engineering
economics are utilized while making equipment
selection and planning for finances for the
purchase of equipment.
 Economics of equipment deals with the study of
working of the equipment and to compute the
unit costs of production.
 This economic evaluation helps in taking a
decision to select an equipment or to retire it.

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 Unit cost of production is calculated after
estimating the cost of production by calculating
hourly ownership and operating cost of the
equipment and knowing hourly production of
that equipment.
 Equipment selection is a decision making from
various alternatives which gives least cost of
unit production considering various factors of
economics being described in this chapter.
 It should consider the rate of interest on the
equipment, and life of equipment.

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 HOURLY WORKING RATE
Hourly working rate of equipment comprises of
the following components :

(i) Owning Cost. It is made up of the following costs :

 Investment Cost,
 Depreciation Cost,
 Major Repairs Cost.

(ii) Operating Cost. It includes the following costs :

 Cost of fuel (or power),
 Cost of lubricants,
 Servicing, maintenance Cost,
 Labor Cost,
 Cost of repairs,
 Various other overheads.
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 OWNING COSTS
(A) Investment Costs
This is a kind of fixed cost and continues to be
incurred whether the equipment is used or not.
Investment costs comprises of the following:

 Interest on the money invested in the

procurement of the equipment.
 Various taxes on the equipment.
 Insurance expenses.
 Storage cost.
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 If the money spent on the purchase of the equipment,
was invested in the bank or similar other agencies, it
would have earned an interest.
 Now this amount, equivalent to the interest, should be
recovered from this equipment.
 The rate of interest should be equal to the prevailing
bank rates.
 Taxes pertaining to ownership of the equipment are
those paid by the owner for the equipment.
 Similarly owner is also required to pay the insurance
premium for the equipment in order to cover the risk
of the equipment and any other loss caused due to any
accident by the equipment.
 Storage cost is the cost of space required by the
equipment and other expenses to be incurred by the
owner for keeping the equipment.
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 Generally these investment costs are taken as about
10 to 15% of the total cost of the equipment. This
total cost of equipment comprises of the following :
 F.O.B. price of the equipment with all attachments
and accessories.
 Insurance and freight charges.
 Expenses on unloading, clearance and custom duty.
 Cost of transportation to the site including loading
and unloading.
 Erection and commissioning charges.

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 (B) Depreciation
Due to use and obsolescence every equipment loses

its value. This loss is accounted for by depreciating

the equipment every year. The depreciation, and

obsolescence are described in detail here.

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 Depreciation.
Whenever any machine or equipment
performs useful work, its wear and tear is
bound to occur.
This can be minimized up to some extent by
proper care and maintenance but can't be
totally prevented. Its efficiency also reduces
with the lapse of time and at one time it
becomes uneconomical to be used further
and needs replacement by a new unit.

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 Efficiency and value of machine or asset
constantly reduces with the lapse of time
during use, which is known as "Depreciation".
 So some money must be set aside yearly from
the profits, so that when that equipment
becomes uneconomical, it can be replaced by
the new one.
 Therefore, the initial cost of machine plus
installation charges + repair charges -scrap
value is charged against overheads and spread
over the machine's useful life.

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