Equipment Cost

On any project using equipment it is important to maintain accurate records concerning utilization, repairs and maintenance. The two main categories of equipment cost is ownership cost and operating cost.

Ownership Cost

For an expense to be classified as an ownership cost it must be incurred regardless of if the equipment is used or not. These costs are as follows:

• Purchase expense
• Salvage value
• Tax savings from depreciation
• Major repairs and overhauls
• Property taxes
• Insurance
• Storage

Depreciation can be calculated several ways, the simplest is the straight-line method. The annual depreciation is constant, reducing the equipment value annually. The following are simple equations paraphrased from the Peurifoy & Schexnayder text:

m = some year in the future

N = equipment useful life (years)

and D_n = Annual depreciation amount

D_n = purchase price / N

Book value (BV) in year m

BV_m = purchase price - (m x D_n)

example:

N = 5

purchase price = $350,000

m = 3 years from now

BV₃ = $350,000 - ( 3 x $350,000/5) = $140,000

Operating Cost

For an expense to be classified as an operating cost it must be incurred through use of the equipment. These costs are as follows:

• Fuel
• Lubricants, lube oils, filters, and grease
• Repairs
• Tires
• Replacement of high-wear items

The biggest distinction from a cost standpoint is if a repair is classified as a major repair or a minor repair. A major repair can change the depreciable equipment value due to an exstension in service life while a minor repair is normal maintenence. Major repairs are charged to the equipment and minor repairs are charged to the job. It is advantagious for projects to classify all repairs as major while the equipment department will desire to classify all repairs as "minor" and charge the work to a job.