Loading the lesson
Loading the lesson
Search AllRounder.ai
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Learn it your way
A short class with Sarah and her students. The other ways are under More.
Sign up free to listen. Transcripts are free to read.
Today, we're focusing on how to calculate ownership costs for construction equipment. Can anyone explain what we mean by ownership cost?
Isn't it the total cost of owning the equipment, including depreciation?
Exactly, Student_1! Ownership costs include depreciation, investment costs, taxes, and insurance. Let's break it down to see how we calculate depreciation using the straight-line method.
How does the straight-line method work?
Great question! It’s calculated by taking the initial price, subtracting the salvage value and tire costs, then dividing by the total life in hours. To remember this, think of the acronym 'ISTH'—Initial, Salvage, Tire, Hours. Now, what’s the next step?
We need to account for taxes and insurance costs next, right?
Exactly! These costs are typically calculated as a percentage of the average value of the equipment.
So, if we know these percentages, how do we compute them?
You’ll multiply those percentages by the average value of your machine. Always remember, clear record-keeping can help us ensure accuracy. Let’s summarize: to estimate ownership costs, we calculate depreciation first, then taxes and insurance based on the average value.
Moving on to operating costs, which components should we focus on?
We should look at fuel costs first, right?
Excellent, Student_1! Fuel costs are critical. They can vary significantly based on machine use and can be derived from fuel consumption factors in handbooks. Is anyone familiar with how we calculate fuel costs?
We multiply the fuel consumption factor by the horsepower of the machine and the unit fuel cost.
Precisely! This brings us to the topic of FOG costs. What does FOG stand for?
Filter, Oil, and Grease!
Right again! FOG costs can be calculated based on hourly consumption data from handbooks or as a percentage of fuel costs. Remember that adjustments may also be needed based on labor skills—let’s think about each factor carefully.
How do we know which handbook to trust for accurate values?
It’s vital to choose handbooks from manufacturers known for reliability. They often provide tables with conditions for various models. Let’s recap: we calculate fuel costs based on consumption factors and fuel prices, and FOG costs based on handbook data or as a percentage of fuel costs.
Now, how does the Peurifoy method differ from the Caterpillar method in estimating costs?
I think Peurifoy considers the time value of money, right?
Correct! The Peurifoy method requires timing cash flows to achieve greater accuracy. Can anyone explain how we convert initial costs in this method?
By using a uniform series capital recovery factor, to convert to annual costs!
Absolutely! You will also convert salvage values using the sinking fund factor. Why might this distinction matter for project budgets?
It’s important because it gives a better representation of costs over time, addressing how cash is really flowing.
Well stated, Student_2! Remember: the Caterpillar method is often simpler while Peurifoy’s is more accurate for long-term financial planning. Let’s wrap up with a summary of accuracy and methods.
So both methods have unique benefits and drawbacks!
Essential consumables necessary for equipment operation referring to filters, oils, and grease.
Calculated as the initial price minus salvage value divided by the useful life of the machine.
Encompasses all costs associated with owning equipment, such as depreciation, taxes, and insurance.
Costs associated with running the machinery regularly, including fuel and other consumables.
Two primary methods for estimating equipment costs in construction, each with its own approaches.
If a excavator has an initial cost of $200,000, a salvage value of $20,000, and operates for 10,000 hours, its hourly depreciation can be calculated as follows: (200,000 - 20,000) / 10,000 = $18/hour.
A construction project may use a Caterpillar handbook to find that its excavator has an hourly fuel consumption of 10 gallons; if fuel costs $4 per gallon, the hourly fuel cost will be 10 * 4 = $40.
To keep machines in great shape, oil, grease, and filters cannot wait.
Imagine a contractor who forgot to change the oil in his excavator. As a result, the machine broke down, leading to costly repairs. He learned the hard way that FOG is essential!
Remember FOG for 'Filter, Oil, Grease' and think of it as what you need to keep your machinery moving smoothly.
FOG: F for Filter, O for Oil, G for Grease - three necessities for maintenance!
Term
What do FOG costs refer to?
Click to flip
Term
What method calculates ownership costs focusing on average values?
Click to flip
Term
What does the Peurifoy method emphasize in cost estimation?
Click to flip
Costs associated with Filter, Oil, and Grease required for equipment operation.
The reduction in value of equipment over time due to wear and tear.
A cost estimation method focusing on ownership and operating costs based on documented equipment performance.
A more advanced cost estimation technique that incorporates the time value of money for accurate financial forecasting.
Expenses that are incurred during the operation of equipment, including fuel, maintenance, and consumables.
This section focuses on calculating FOG (Filter, Oil, Grease) costs in the context of equipment cost estimation using the Caterpillar and Peurifoy methods.
In this section, we delve into the FOG cost calculation as part of overall equipment costs. It outlines the significance of accurately estimating ownership and operating costs using two prominent methods: Caterpillar and Peurifoy. Special emphasis is placed on calculating consumables and variations in labor rates, contributing to clearer financial forecasting in construction projects.
This section covers the calculation of FOG costs, which include Filter, Oil, and Grease, pivotal components in estimating total equipment costs in construction. The approach utilizes the Caterpillar and Peurifoy methods for determining ownership and operating costs.
The Caterpillar method involves:
Ownership Cost Estimation:
Operating Cost Estimation:
The Peurifoy method similarly estimates ownership costs by considering time value and cash flows, adjusting initial costs and salvage values to suggest more accurate ongoing costs.
Both methods highlight the importance of accurate records and adjustments according to equipment and site conditions, ultimately aiding production efficiency and cost-effectiveness in equipment management.