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Cost of Equipment
Cost of Equipment
Cost of Equipment
CONSTRUCTION EQUIPMENTS
INTRODUCTION
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2. SHIPPING COST
THE ACTUAL MARKET VALUE OF A PIECE OF EQUIPMENT AFTER 1 YEAR LESS THAN
THE AMOUNT PREDICTED BY STRAIGHT LINE METHOD. THIS IS AN ACCELERATED
DEPRECIATION METHOD AND IT MODELS MORE ANNUAL DEPRECIATION IN THE
EARLY YEARS OF A MACHINE’S LIFE AND LESS IN ITS LATER YEARS.
METHOD YEAR
1 2 3 4 5 6 7
SL (Dn) 16,286 16,286 16,286 16,286 16,286 16,286 16,286
SOYD (Dn) 28,500 24,429 20,357 16,286 12,214 8,143 4,071
DDB(Dn) 37,714 26,939 19,242 13,744 9,817 6,543 0
INVESTMENT/INTEREST COST
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P = IC (n + 1) P = IC (n + 1) + S(n-1)
2 2n
* ASSUMPTION: A UNIT OF EQUIPMENT WILL * ASSUMPTION: A UNIT OF EQUIPMENT HAS
HAVE NO SALVAGE VALUE AT THE END OF ITS SALVAGE VALUE AT THE END OF ITS USEFUL LIFE
USEFUL LIFE
P = 50,000(5+1) + 15,000(5-1)
2(5)
= 300,000 + 60,000
10
= $36,000
INSURANCE, TAX AND STORAGE COSTS
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THE AVERAGE RATES FOR INTEREST, INSURANCE, TAX AND STORAGE FOUND IN
THE LITERATURE ARE LISTED BELOW:
THE HOURLY MAINTENANCE AND REPAIR COST DURING A PARTICULAR YEAR CAN
BE ESTIMATED BY USING THE FOLLOWING FORMULA :
ESTIMATE THE HOURLY MAINTENANCE AND REPAIR COST OF THE SCRAPER (SEE
ALSO : EXAMPLE 2) FOR THE SECOND YEAR OF OPERATION. THE INITIAL COST OF
THE SCRAPER IS $186,000, TIRE COST $14,000 AND ITS USEFUL LIFE IS 5 YEARS.
ASSUME AVERAGE OPERATING CONDITION AND 2000 HOURS OF OPERATION
PER YEAR.
A : EXAMPLE 4
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THE TIRE COST REPRESENTS THE COST OF TIRE REPAIR AND REPLACEMENT
BECAUSE THE LIFE EXPECTANCY OF RUBBER TIRES IS GENERALLY FAR LESS THAN
THE LIFE OF THE EQUIPMENT ON WHICH THEY ARE USED ON, THE DEPRECIATION
RATE OF TIRES WILL BE QUITE DIFFERENT FROM THE DEPRECIATION RATE OF THE
REST OF THE VEHICLE
TIRE REPAIR COST CAN ADD ABOUT 15% TO TIRE REPLACEMENT COST
• ASSUMPTION :
FUEL CONSUMPTION FACTOR FOR UNFAVORABLE WORKING CONDITION :
0.040
THE QUANTITY OF OIL REQUIRED BY AN ENGINE PER CHANGE WILL INCLUDE THE
AMOUNT ADDED DURING THE CHANGE PLUS THE MAKE-UP OIL BETWEEN
CHANGES
IT WILL VARY WITH :
• THE ENGINE SIZE
• THE CAPACITY OF CRANKCASE
• THE CONDITION OF THE PISTON RINGS
• THE NUMBER OF HOURS BETWEEN OIL CHANGES
IT IS A COMMON PRACTICE TO CHANGE OIL EVERY 100 TO 200 HOUR
LUBRICATING OIL COST
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q = 0.006 x HP x f + c
7.4 t
: IT IS THE COST OF MOVING THE EQUIPMENT FROM ONE JOB SITE TO ANOTHER
IT IS OVERLOOKED BECAUSE OF THE ASSUMPTION THAT THE PREVIOUS JOB
WOULD HAVE ALREADY PAID FOR IT
THE COSTS OF EQUIPMENT MOBILIZATION AND DEMOBILIZATION CAN BE LARGE
AND ARE ALWAYS IMPORTANT ITEMS IN ANY JOB WHERE SUBSTANTIAL
AMOUNTS OF EQUIPMENT ARE USED. THESE COSTS INCLUDE :
• FREIGHT CHARGES (OTHER THAN THE INITIAL PURCHASE)
• UNLOADING COST
• ASSEMBLY OR ERECTION COST (IF REQUIRED)
• HIGHWAY PERMITS
• DUTIES
• SPECIAL FREIGHT COSTS (REMOTE OR EMERGENCY)
EQUIPMENT OPERATOR COST
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OWNERSHIP COSTS
• OWNERSHIP COSTS ARE CALCULATED AS A CUM OF COSTS INCURRED DUE TO
DEPRECIATION, INTEREST, INSURANCE AND TAXES
• USUALLY DEPRECIATION IS DONE TO ZERO VALUE WITH THE STRAIGHT-LINE
METHOD
• ACQUISITION OR DELIVERED COSTS SHOULD INCLUDE COSTS DUE TO FREIGHT,
SALES TAX, DELIVER AND INSTALLATION
• TIRE COST IS SUBTRACTED FROM THE DELIVERED PRICE.
CATERPILLAR METHOD
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DEPRECIATION
= NET VALUE = $1,193,277 = $59.66
DEPRECIATION PERIOD IN HOURS 20,000
• INSURANCE $47.77
• TAXES
PHYSICAL LIFE IS THE AGE AT WHICH THE MACHINE IS WORN OUT AND CAN NO
LONGER RELIABLY PRODUCE. AT THIS POINT, IT WILL USUALLY BE ABANDONED
OR SCRAPPED
AS CONSTRUCTION EQUIPMENT AGES, MAINTENANCE AND OPERATING COSTS
INCREASE
THE LENGTH OF A PIECE OF EQUIPMENT’S PHYSICAL LIFE AND THE RATE AT
WHICH ITS OPERATING COSTS RISE ARE AFFECTED BY THE CARE IT RECEIVES
WHILE IN USE, THE NATURE OF THE JOB IT IS DOING, AND THE QUALITY OF THE
MAINTENANCE IT RECEIVES
PROFIT LIFE
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PROFIT LIFE IS THE LIFE OVER WHICH THE EQUIPMENT CAN EARN A PROFIT. THE
RETENTION BEYOND THAT POINT WILL CREATE AN OPERATING LOSS. THIS
ESSENTIALLY IS THE POINT WHERE THE MACHINE SEEMINGLY SPENDS MORE TIME
IN THE REPAIR SHOP THAN IT DOES ON THE PROJECT SITE.
INCREASINGLY COSTLY REPAIRS EXACERBATE PROFIT LIFE AS MAJOR
COMPONENTS WEAR OUT AND NEED TO BE REPLACED
THE EQUIPMENT MANAGER MUST BE ABLE TO IDENTIFY WHEN A PARTICULAR
MACHINE IS NEARING OR HAS REACHED THIS POINT AND PLAN TO REPLACE IT
WITH A NEW MACHINE WHILE THE MAJOR COMPONENTS ARE STILL
FUNCTIONAL
ECONOMIC LIFE
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