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Setup: Equipment Costing

Go to Setup | Equipment/Trucks | Equipment | Equipment Costing from the Main Menu.

The grid shows two rates:

1. Std Cost / Hour.  This cost is the cost of operating your machine, NOT including the cost of the operator.  In reports that rely on this cost measure, the actual cost of the operator is added to the Std Cost to calculate the full cost of operation.
2. Full Rate/Hour:  This is the cost of operating your machine, including the cost of the operator.

There are two ways to enter your costs:  (1) direct entry and; (2) the cost build-up method.

Direct Entry of Equipment Cost

Select Add from the window.

This form allows you to directly enter your equipment costs.  If you have another system to calculate your costs or you use a reference guide or "Blue-Book" to estimate your rates, you can just enter them here.

Cost Build-up Method

The equipment cost worksheet (shown below) allows you to build up your standard cost from each of the components.  In the worksheet, the yellow cells indicate those cells that you can enter data and assumptions.  The white cells (with numbers) are calculated values.

The worksheet is split into 5 panels:

A.    Assumptions

1. Annual Available Hours:  Expected hours for the equipment unit for year
2. Utilization percent.  The percentage of available hours the unit performs 'production' work
3. Annual Operating Hours:  Calculated as the product of available hours and the utilization percent.  This value is used in the denominator for the calculation of the average cost per hour.  The concept used here is 'cost per production hour' meaning that all costs related to down time are allocated across production hours.
4. Interest Rate on Borrowed Capital:  Interest Rate on Debt
5. Expected Life (Hours):  Expected life (in hours) for the equipment unit.  (Used to determine the expected life of the equipment in years for use in calculating depreciation.)
6. Salvage Value:  Estimated salvage value for the unit.  You enter the percent; the worksheet applies the percentage to the Purchase Price to determine the salvage dollar amount.
7. Average Investment:  The average investment is the acquisition cost plus the salvage amount divided by two [ (R16 + R11) / 2].  This is you average capital you have tied up in the equipment unit over its useful life.  In the example above the equipment unit costs $400,000 and has a salvage value of $100,000 (25%), which yields an average investment of $250,000.
8. Purchase Price:  The purchase price of the equipment.  You can also add additional miscellaneous costs to build up to a total acquisition cost.
9. Fuel Consumption (Volume / Hour):  Rate of fuel consumed per hour of operation
10. Fuel Price Per Unit of Volume:  The price per unit of fuel consumed.  (Note: if fuel consumption is in litres, you would enter the litre price; if fuel consumption is in gallons, you would enter the gallon price.)
11. Machine Years:  Machine life equals the lifetime hours divided by annual hours.
12. Operating Wage:  Assumed base wage rate for your operator plus your payroll load (your additional company payroll costs) cost.  In the example above, the base wage is set to $25.00/Hour and the payroll load is set at 25% to yield an effective payroll cost of $31.25/Hr.
13. Insurance (Percent of average investment):  This is the cost of insurance for the equipment unit, expressed as a percentage of you average annual investment.

B.    Ownership Cost

1. Depreciation:  The depreciation amount per hour equals the depreciation basis (purchase price - salvage value) divided by the lifetime hours.  This calculation assumes a straight-line depreciation method.  [ R27 = (R16 - R11) / R10 ]
2. Interest on Investment:  This is the annual interest amount divided by annual operating hours.  [R28 = R12 x R9 / R8 ]
3. Insurance:  This is the insurance percentage multiplied by the average investment divided by annual operating hours: [R29 = R12 x R23 / R8 ]

    The total hourly ownership cost equals the sum of depreciation, interest and insurance.  [R31 = R27 + R28 + R29]

C.    Operating Cost

1. Operating Wages:  You build up your total hours as the number of days multiplied by the average hourly work day.  This total should match the total annual estimated hours in row 6.  The total hours is then split between straight time and overtime hours.  The overtime factor is assumed to be time and one-half.  This in the example above, the wage rate is $25.00 for straight-time and $37.50 for overtime.  The hourly rates are multiplied by the available (not production) hours to calculate the annual direct payroll cost.  The loading factor is applied to the direct payroll cost to calculate the total loaded payroll cost for the year.  This total is then divided by the production (not available) hours to calculate the operator cost per production hour.  In the above example, the direct payroll cost is $62,500.  The payroll load is $15,625 (25% of $62,500), yielding a total payroll cost of $78,125.  The hourly cost for the operator is $32.55/Hr ($78,125 / 2400).  This value is subtracted from the full founded to cost to compute the "Dry" or standard cost for the equipment without operator.
2. Fuel Costs per Hour:  This is the product of fuel consumption per hour and fuel price per unit of consumption [R52 = R17 x R18]
3. Oil and Lube, Including Filters per Hour:  You input a percentage of your fuel costs to estimate this value.  In the example, the value of 7% is entered, which when multiplied by the fuel cost per hour, yields a value of $1.51/Hr.  You can adjust this percentage to match you actual experience.
4. Repairs & Maintenance:  There are three rows provided that allow you to enter your estimated annual repairs and maintenance for the equipment unit.  The total for Repairs & Maintenance (R64 = R60 + R61 + R62) in row 64 is then divided by annual hours to calculate the average hourly repairs and maintenance cost. [R66 = R64 / R8]
5. Operating Supplies:  An annual entry for miscellaneous costs for operating the unit.  The annual amount is divided by the annual operating hours to determine the hourly cost in row 70.

    The total operating costs per hour are the sum of operating wages, fuel, oil & lube, repairs and maintenance, and operating supplies.  [R72 = R49 + R51 + R56 + R66 + R70]

D.    Profit & Risk

    The worksheet also includes an allowance for profit and risk.  The allowance equals a user-input percentage applied to the hourly ownership costs in row 29.  In the example above, a 10 percent entry is applied to an ownership cost of $250,000 for a profit/risk allowance of $13.02/hr.

E.    Summary.

The total hourly operating costs are summarized in the last section of the spreadsheet.  The total hourly costs (Full Founded Rate) are the sum of the ownership costs (row 31), the operating costs (row 72), and profit & risk (row 77). [R85 = R31 + R72 + R77].  In the above example, the total is $144.58/hr.  This is the Full Rate / Hr and is used for those business reports that rely on the 'Full Founded Rate' to measure equipment costs.

The Standard Cost/Hr is also calculated by the worksheet.  This cost is the cost of operating your machine, NOT including the cost of the operator.  Mathematically, it is calculated as the total in row 83 less the operator's cost in row 49.  In the example, the cost is $144.58 less $103.89, or 56.56.  In reports that rely on this cost measure, the actual cost of your operator is added to the Std Cost to calculate the full cost of operating the equipment unit.