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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 going to discuss ownership costs. Who can tell me what ownership costs might include?
It includes things like the purchase price and depreciation, right?
Exactly! Ownership costs primarily encompass depreciation, which is the reduction in the value of the asset over time. Remember the acronym DIM—Depreciation, Insurance, Maintenance—to help you recall these components.
What about interest and taxes?
Great point! Interest and taxes also play vital roles. Thus, ownership costs are a cumulative sum of depreciation, interest, insurance, taxes, and maintenance.
How do we calculate depreciation for a truck?
That's a good question! We'll explore that in detail, but primarily, we'll use the initial purchase price less the salvage value over the useful life of the truck.
What’s salvage value?
The salvage value is the estimated residual value of an asset at the end of its useful life. Remember, it's an important number for depreciation calculations. Now, let’s summarize this session—ownership costs include DIM: Depreciation, Insurance, and Maintenance, along with interest and taxes.
Now, let's shift our focus to operating costs. What do you think comprises these costs?
Isn’t it primarily fuel and labor costs?
Exactly! Operating costs include fuel costs, labor, maintenance, and repairs. Using the acronym FMLR can help remember these: Fuel, Maintenance, Labor, Repairs.
How do we calculate fuel costs for the off-highway truck?
"Great question! For example, we can multiply the fuel consumption factor by the horsepower and local fuel cost. The formula is:
Having discussed both ownership and operating costs, how do we find the total cost of equipment?
Do we just add them together?
Yes! The total cost is the sum of total ownership costs and operating costs along with any applicable labor costs. Can anyone recall the total costs from our previous discussions?
Total ownership was 2713 rupees per hour and total operating costs were 3209.29 rupees per hour.
Correct! Adding those gives us a total of 6122.29 rupees per hour. This total cost is crucial for budgeting and project management.
Why is it important to know?
Understanding total costs helps in project planning and analysis, ensuring project's financial feasibility. Let's conclude with a quick recap of our discussion: Total costs combine ownership and operating costs.
Include depreciation, interest, taxes, and insurance related to asset ownership.
Encompasses costs incurred during the operation of equipment such as fuel and maintenance.
Calculated by taking the initial price minus salvage value divided by the useful life.
Derived from the fuel consumption factor multiplied by horsepower and fuel price.
For a dump truck with an initial cost of 3 crores and operating for 1600 hours annually, the hourly depreciation can be calculated as 1,445 rupees per hour.
The hourly fuel cost for the dump truck, with a fuel consumption factor of 0.09 liters per hour per horsepower and local fuel cost of 65 rupees per liter, is calculated at 1,462.50 rupees.
For costs that you own, keep in mind—DIM is the way, Depreciation in line.
Imagine a truck, once shiny and new, slowly loses value—what can you do? Calculate depreciation, and keep track of the rest, din the costs of owning, so you'll do your best.
FMLR for Operating Costs: Fuel, Maintenance, Labor, Repairs.
DIM: Depreciation, Insurance, Maintenance for Ownership Costs.
Term
Ownership Cost
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Term
Operating Cost
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Term
Depreciation
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Term
Fuel Consumption Factor
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Costs associated with owning an asset, including depreciation, insurance, taxes, and maintenance.
Costs incurred during the operation of the equipment, such as fuel, labor, and repair expenses.
The reduction in value of an asset over time, often calculated using the straight-line method.
The rate at which fuel is consumed by equipment, often expressed in liters per horsepower per hour.
The expected residual value of an asset at the end of its useful life.
This section provides an overview of ownership and operating costs associated with heavy equipment, using specific examples to illustrate cost estimation methodologies.
The section delves into estimating ownership and operating costs of heavy machinery, focusing on an off-highway dump truck. It outlines methods for calculations, considering factors like depreciation, fuel consumption, and associated fees, guiding readers through practical examples to solidify their understanding.
This section focuses on the critical aspects of estimating ownership and operating costs for heavy equipment, using an example of an off-highway dump truck. The methodology follows Peurifoy guidelines, emphasizing the need for detailed calculations based on assumptions and specific data points.
Key points highlighted include:
By providing a comprehensive breakdown of these costs, the section aims to prepare readers for real-world applications in construction and machinery operations.