Cost Of Construction Equipment | How Do You Calculate Construction Equipment Costs?

COST OF CONSTRUCTION EQUIPMENT

How Do You Calculate Construction Equipment Costs?

 

PROCUREMENT COST

Procurement cost includes

(I) The Cost Price Of The Equipment,

(II) Interest On Money Invested On The Purchase,

(III) Taxes Paid And

(IV) Insurance Cost.

Evidently, the owner of the equipment pays cash for the procurement of the equipment. It is to be noted that if the same amount is invested in some other scheme what would be the turnover. One should get a higher amount annually by investing in the equipment. Each year the equipment earns for the owner and in the process, its value gets depreciated. Thus the investment in the equipment is therefore reduced by the amount of depreciation. A realistic rate of interest would be the one based on the average value of the equipment during its useful life. The average value of the equipment has to be determined.

On the depreciated value of the equipment, the insurance and taxes are paid. The expenses also should be worked out on the average value of the equipment. These aspects are to be considered before investing in the procurement of equipment.

 

OPERATING COST

The operating cost of equipment is based on the following factors:

(i) Cost of investment

(ii) Depreciation cost

(iii) Cost of major repair

(iv) Cost of fuel and lubricants

(v) Cost of labour

(vi) Servicing and field repairs

(vii) Overheads

 

1. Cost of Investment

By investment made on the equipment the owner is losing an amount equal to the interest or return one would have otherwise been received from banks or other sources of investment. For the purpose of calculating the total cost of investment, the interest, the taxes, insurance, etc., may be taken as 10–15% of the cost of equipment.

 

2. Depreciation Cost

Because of wear and tear, the cost of equipment gets depreciated. An amount of earning has to be set aside, to balance the depreciation, so that the accumulated amount can be used at the end. This amount is recovered from the earnings of the equipment and forms a charge on the operating cost.

 

3. Cost of Major Repair

Major repairs are those which are incurred when the equipment is taken to a workshop. This repair involves the replacement of major parts of the equipment, overhauling and servicing. This incurred expense is added to the capital cost so that the expenditure is distributed over the years and included in the operating cost of the machine.

 

4. Cost of Fuel and Lubricant

While calculating the fuel consumption of the equipment, it is the general practice to consider the full load condition and constant speed under favourable conditions. As the equipment would not be working always at the ideal condition and so a reduction factor of 60% is considered.

 

5. Cost of Labour

The cost of labour includes (i) the wages of the working crew and (ii) the wages of supervisory staff.

 

6. Servicing and Field Repair

All expenses involved in the maintenance normally met during the operation of equipment except major repairs are included under this. This demands periodical service of the equipment.

 

7. Overhead

In a large project, the whole establishment is work charged. Any unforeseen expenses which are not work charged or non-productive are distributed to the various work producing elements for purpose of cost control.

SOURCE: BUILDING CONSTRUCTION MATERIALS AND TECHNIQUES | P. PURUSHOTHAMA RAJ

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