How to Calculate Selected Equipment Cost

How to Calculate Selected Equipment Cost.
To make this calculation correctly, we must first review the following concepts…

The Lifetime of vehicles and Machinery

The lifetime of vehicles and machinery = Vu

We define service life as the period during which the equipment operates with reliable and economically justifiable performance.

The lifetime of work equipment is affected by the severity of the conditions in which it is used, the care with which it is maintained and repaired, and by its technological obsolescence.

Generally, the useful life is estimated in working hours.

To guide the reader, we present the following values:

-Light construction machinery: 6,000 working hour’s total; 3 years duration (e.g. drills, compressors, welding machines, etc.)

-Heavy machinery: 10,000 total working hours; 5 years duration (e.g. a front loader, motor grader, etc.)

-Ultra-heavy machinery: 16,000 total working hours; 8-year duration (e.g. an asphalt plant)

To achieve the above values, we have assumed 2000 hours of work per year, which is close to reality.

Acquisition value = Vad

The acquisition value is the market price of the equipment.

To quantify the acquisition value, we should take all costs attached to the acquisition of the equipment into account.

If the equipment is foreign-made, the acquisition value of the equipment should include the price of the unit placed in the port of shipment (FOB), the costs of loading, freight, and unloading at the port of destination (CIF), port storage fees, insurance of goods in transit, other related costs (such as letters of credit, and guarantees), transport to the owner’s machine park, and more.

Net value of equipment = Vn

Vn = Net value = Vad-P4-Pe

Where P4 is the value of the rims and Pe is the value of the special or accessory parts.

How to Calculate Selected Equipment Cost in Construction Projects

– The resale value of machinery and end-of-life vehicles = Vrev

The salvage value for heavy machinery (loaders, motor graders, tractors, etc.) generally fluctuates between 20 and 25% of the acquisition value.

The salvage value of light machinery and equipment (compressors, mixers, motor pumps, motorized welding machines, etc.) generally ranges from 10 to 20% of the acquisition value.

Value to be depreciated = D

Depreciation is the loss of value of the equipment because of its use or age.

If we assume it, as usual, that the equipment will decrease in value from its original total cost at a uniform rate, the straight-line method of depreciation is being used.

Depreciation per hour is the ratio of the acquisition value, less the resale value over the useful life of the equipment. The equation is:

D = [Vn-Vrev]/Vu

The average value of the equipment = Vpm

Net asset value plus resale value divided by 2.

Vpm = [Vn + Vrev]/2

How to Calculate Selected Vehicles and Machinery Cost

– Cost of Maintenance and Repair

Proper maintenance prolongs the economic life of a machine.

The recommended maintenance is corrective, preventive, and predictive.

-The cost of maintenance for repair and spares is normally considered as a percentage of the depreciation value, according to the following values.

-Heavy-duty maintenance cost: 80 to 100% of the depreciation value.

-Maintenance cost for normal work: 70 to 90% of the depreciation value.

-Maintenance cost for light duty: 50 to 80% of the depreciation value.

We take the cost of labor and the cost of spare parts as a percentage of the maintenance cost of the machinery or vehicle during its useful life.

The cost of labor is 25% of the maintenance cost.

The cost of spare parts represents 75% of the maintenance cost.

Cost of fuel consumption

We relate the fuel consumption of construction equipment to:

-The nominal power of the engine.

-The type of fuel used.

-The operating factor of the machine or equipment that varies according to the speed at which we load the engine.

-The type of operation that the machine performs.

-For the operator’s expertise.

-Because of the technological advance of the equipment, etc.

Usually, each company records the fuel consumption of each piece of equipment, for example during one month, and then divides that amount into the monthly working time of the machinery, thus getting the hourly fuel consumption of the equipment.

Cost for the consumption of machine tires because of their use = P4

Heavy machinery requires special tires for various construction applications.

The hourly cost is obtained by dividing the price of the tire into the economic or useful life of the tire.

Tire life hours are generally data provided by the manufacturer and depend on the severity of use.

To the above value is usually added the amount for tire repair, which is taken as 15% of the tire’s depreciation.

The hourly cost of affected personnel

In the case of a vehicle, it will be its driver, with a concrete plant it will be its qualified operator plus his assistants.

The interest of the invested capital

Any company that buys machinery finances the funds in banks or on the capital market, paying the corresponding interest.

It may be the case that if the entrepreneur has sufficient own funds, he makes the investment directly while waiting for the machine to be depreciated in proportion to the investment made.

Here, an amount equivalent to the interest on the capital invested in the machine is charged.

We calculate the interest in the capital invested per year as the average value of the equipment (net value plus its residual value divided by 2) by the interest rate.

Insurance, taxes, and storage costs

Insurance premiums vary according to the type of machinery and the risks to be covered during its economic life.

This charge exists both if we insure the machinery with an insurance company and if the owner is self-insured.

The type of insurance to be considered is all-risk. The amount of this insurance has an approximate cost of 5.5% of the average value of the equipment.

The taxes apply to the gained property. We must calculate its percentage according to the legislation in force and may vary from 1 to 2% of the average value of the equipment.

As for storage, it refers to the cost of keeping the machinery in the central workshops because of inactivity.

We estimate this cost in the order of 1 to 1.5% of the average value of the equipment.

In the following post we will continue discussing the item of how to calculate the hourly cost of the equipment for a construction and industrial assembly work.

How to Calculate Selected Equipment Cost – Calculate Man Hours

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