Machinery Cost

Machinery cost
Operating cost
Fixed cost Variable cost

Depreciation Fuel and oil

Interest Other

Insurance labour

Tax

Housing

Repair and maintenance

 Custom cost
• The price paid for hiring an operator and
equipment to perform a given task
• Comparing cost and custom cost;
determine the purchasing or hiring machine
 Total Life in Hours and years
• Assumed before calculation
• Product of
– Period of working season
– Rate of available working days
– Rate of actual operating time in a working hour
 Depreciation
• The reduction of the value of machine with
the time and usage
• Largest single cost of machine
• Several methods are used for estimating
 Straight line depreciation
P -S
Depreciation =
N

P – Purchase price
S – Salvage price
N – Total life in years
 Interest
P+S r
Interest = ×
2 100

P +S
Average investment =
2

r – interest rate
 Insurance, Tax

P+S i
Insurance = ×
2 100

t
Tax = P ×
100

i – insurance rate
t – tax rate
 Shelter/housing
h
housing =P ×
100

h – housing rate
 Repair and maintenance
m
Repair = P ×
100

m – repair and maintenance rate

 Hourly fixed cost
Annual fixed cost
Hourly fixed cost =
operating h/yr
 Variable Costs
• Calculated /h
Fuel cost/h
lubrication cost/h
labour cost/h
 Total cost
Total cost = hourly fixed cost + variable cost
(Hunt, 1995)

𝐶 = 𝐹𝑐 + 𝐹 + 𝑂 + 𝐿
C = Cost of operation (Rs. /h)
Fc = Hourly fixed cost (Rs.)
F = Fuel cost (Rs. /h)
O = Lubrication cost (Rs. /h)
L = Labour cost (Rs. /h)
• The hourly total cost was converted to the
– cost per unit area (hectare) by dividing by the field
capacity (RNAM, 1983).
 Timeliness cost
• Optimum time period for several field
operations
• Too early/delay – economic penalty
• Timeliness work
– By increasing machine number
– Using large machine

For your reference………….

 Break-even Point
• The area that a machine has to work per year in
order to justify owning the machinery
𝐹𝑐
𝐵𝑒 =
𝑉𝑐𝑡 − 𝑉𝑚
Be = Break-even point (ha/yr)
Fc = Fixed costs (Rs./yr)
Vct = Variable costs for manual method (Rs./ha)
Vm = Variable costs for machinery method (Rs./ha)
(Alizadeh et al.,2007)
EX 01
Name of the machine A reaper
Purchase price Rs. 1400
Life of years years 7
Operating hours/y h/y 300
Total life h 2100
Salvage price Rs. 140
Test data
Field capacity ha/h 0.125
Fuel consumption l/h 1
Labour required
skilled man-h/ha 8
unskilled man-h/ha 24
Harvested grain ton/ha 3
Fixed cost/y
Depreciation Rs. 180.0
Interest (12%) 92.4
Insurance (1%) 7.7
Taxes (1%) 14.0
Housing (1.5%) 21.0
Repair and maintenance (8%) 112.0
Total Rs. 427.1

Hourly fixed cost = 1.42 Rs/h

Variable cost
Fuel cost @ Rs. 117/l 117.0
Lubricating oil (10%) 11.7
Labour
Skilled @ Rs. 1000/8h 125.0
Unskilled @ Rs. 800/8h 300.0
Total variable cost Rs/h 553.7
Total cost Rs/h 555.12
Total cost Rs/ha 4,440.96
Rs/Ton 1480.32