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A short class with Sarah and her students. The other ways are under More.
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Today, we're starting our discussion on equipment costs with ownership costs. Can anyone tell me what ownership cost includes?
Isn't it just the initial purchase price?
Good try, Student_1! Ownership costs also include depreciation, taxes, and insurance. Let's focus on depreciation first. What method do you think we use to calculate it?
I think it's the straight-line method?
That's correct, Student_2! We take the initial price, subtract the salvage value, and divide that by the useful life of the equipment. Can anyone summarize this?
So, it’s like Initial Price - Salvage Value ÷ Useful Life!
Exactly! Now how about we add to that—what else is part of ownership costs?
Taxes and insurance, as a percentage of the machine’s average value?
Spot on, Student_4! Always remember the acronym TIM—Taxes, Investment, and Maintenance are part of ownership costs. Let's move on to operating costs.
Now, we will cover operating costs. What primary factor do we begin with here?
Fuel costs, right?
Correct! We can find fuel consumption figures in equipment handbooks. What should we consider when looking at these numbers?
We must adjust for actual operating conditions, like load.
Exactly! We can calculate the fuel cost using the formula: Fuel Consumption Factor times Rated Power times Unit Fuel Cost. Can anyone give an example of what Consumables may include?
Filter, oil, grease—FOG!
Right again! You can remember it as FOG. Now, these costs may vary based on the conditions. Let’s look closely at tire costs.
Let’s dive into tire costs; they’re crucial for our overall operating costs. What factors do we need to account for?
We need to consider the estimated life of tires and replacement costs.
Exactly! We look into the cost of replacement tires and assume a repair cost. Can anyone describe the method for estimating repair costs?
It’s usually expressed as a percentage of the machine’s initial cost excluding tire costs, right?
Yes, great! To summarize, tire costs involve both replacement and maintenance, which collectively influence our operating cost significantly.
Let's wrap up this part by comparing our two methods. What’s one key distinction between the Caterpillar method and the Peurifoy method?
The Peurifoy method considers the time value of money for cash flows.
Correct! And why is that important?
It gives a more accurate estimate of costs over time!
Right! Understanding cash flow timing helps in budgeting and effectively managing project costs. Great job, everyone! Remember these concepts as they will help solidify your understanding of equipment costs.
Refers to all costs related to owning equipment, including depreciation.
These costs are linked to the actual operation of the equipment, such as fuel and maintenance.
Involves the straight-line method, which relies on the initial cost, salvage value, and useful life.
Ongoing costs like taxes and insurance expressed as a percentage of the equipment's value.
If a machine has an initial cost of $100,000, a salvage value of $10,000, and a useful life of 5,000 hours, the depreciation would be calculated as follows: (100,000 - 10,000) / 5,000 = $18/hour.
An excavator operating at a high load condition might consume fuel at a rate of 15 gallons per hour; if fuel costs $3 per gallon, the fuel cost for that hour is 15 * 3 = $45.
For costs at hand, remember TIM—Taxes, Investment, and Maintenance so neat, improves your project cost estimate.
Imagine a worker named Sam who lost a dollar each time his machine aged. Understanding depreciation saved him money, making him a wise worker!
FOG - Remember Filters, Oil, and Grease as a cloud covering all consumable costs.
COST - Cover Operating & Salvage Costs Together.
Term
How is depreciation calculated?
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Term
What does FOG stand for?
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What is included in operating costs?
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Why is the salvage value important?
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A reduction in the value of an asset over time, primarily due to wear and tear.
Ongoing expenses necessary to operate machinery, such as fuel, maintenance, and labor.
The estimated resale value of an asset at the end of its useful life.
Filters, Oil, and Grease costs associated with machinery operation.
The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.
This section focuses on estimating total equipment costs using the Caterpillar and Peurifoy methods, detailing both ownership and operating cost components.
The section discusses the methods for estimating equipment costs in construction, specifically the Caterpillar and Peurifoy methods. It covers how to calculate ownership costs, including depreciation, and operating costs such as fuel, maintenance, and repair, while using illustrations to solidify these concepts.
This section covers two widely adopted methods for estimating the total equipment costs in construction: the Caterpillar method and the Peurifoy method. The primary focus lies in understanding both ownership costs and operating costs.
Ownership Costs:
Operating Costs:
Both methods allow calculating ownership and operating costs effectively, although the Peurifoy method emphasizes timing of cash flows for refined cost estimation. Overall, these approaches provide a systematic way to assess equipment costs critical for project budgeting and management.