Week 10 Heavy Equipment Costs PDF

Construction Equipment 1  Why Study Equipment Knowing how much it costs to operate the machine on a project is critical to bidding and construction planning.  Equipment Procurement Goal Provide the right equipment at the right time and place so the work can...

Construction Equipment 1  Why Study Equipment Knowing how much it costs to operate the machine on a project is critical to bidding and construction planning.  Equipment Procurement Goal Provide the right equipment at the right time and place so the work can be accomplished at the lowest cost. – Work at the lowest cost ≠ machine at the lowest cost – Utilization drives purchase or rent/lease decision Specific objectives: – Minimize ownership and operating costs – Increase machine availability – Increase machine utilization Economics – Depreciation 4  Depreciation Straight-Line Depreciation (SL) Sum-of-the-Years Depreciation (SOY) Declining Balance Depreciation (DB)  BMW 550i VS 2013, Mileage: D3 > … > Dn – Declining-balance method: % based on BVm-1 Economics – Ownership and Operating Costs 27  Life Cycle Cost How much does it cost to operate a machine on a project? Components of Ownership and Operating costs – Ownership cost calculation – $/hr – Operating cost calculation – $/hr Machine Production rate (Productivity) – cy/hr Unit cost – $/cy OWNERSHIP COST  Depreciation (Purchase expense)  Insurance  Taxes  Salvage value  Shop expenses OWNERSHIP COST Purchase price* - Salvage + Overhead = Ownership expense OWNERSHIP COST Regardless of how much a machine is used, the owner must pay ownership cost. True False OWNERSHIP COST Regardless of how much a machine is used, the owner must pay Ownership cost. True False  OWNERSHIP COST New $260,000 4 yr later $120,000 Purchase expenses = $140,000 OWNERSHIP COST New $260,000 8 yr later $0 Purchase expenses = $260,000 OWNERSHIP COST  Include the cost of all attachments and delivery charges in initial machine cost (delivered price), plus overhead costs.  Deduct tire cost for wheel-type machines  OPERATING COST  Consumables - fuel, oil, grease & filters (FOG)  Repair  Maintenance  Tires or tracks  High wear items - cutting edges, teeth OPERATING COST High wear items  Bucket teeth  Cutting edges  Truck body liners  Ripper tips  Ripper shank protectors OPERATING COST Machine operating cost includes which of the expenses listed? $ Repair s $ Interes t $ Tires OPERATING COST Machine operating cost includes which of the expenses listed? $ Repair s $ Interes t $ Tires Ownership Costs vs. Operating Costs Ownership costs Operating costs Equipment is used or not Only when equipment is used Depreciation Maintenance and repair Interest Tires (repair/replacement) Taxes Fuel Insurance Service Storage Downtime License fee Operator  Ownership Costs vs. Operating Costs Ownership costs generally decline with equipment age because of the depreciation Operating costs tend to increase with age because of repair costs.  Ownership costs Time value of money analysis Economic useful life is estimated by hours of use  Costs = Ownership + Operating Estimating Ownership & Operating Costs: – Determine rates to charge projects for equipment use – Decide disposal, purchase, rental, or lease – Methods Company’s Historical data Best Manufacturer’s literature 2nd best