5.2. Ownership Cost Calculation According to Peurifoy

So just add up everything the ownership cost, all the operating cost, and operating wages; you will get the total ownership and the operating cost following the Peurifoy guidelines.

To calculate the total costs associated with owning and operating equipment, we combine ownership costs with operating costs and wages. Ownership costs typically include initial purchase prices, depreciation, interest, taxes, and insurance. Operating costs comprise fuel, maintenance, and labor. Following Peurifoy's method, these costs must be accurately aggregated to assess the true economic implications of equipment usage.

Think of a business that owns a delivery truck. The ownership costs would include the truck's purchase price, its depreciation over time, insurance, and any applicable taxes. The operating costs would include the fuel it consumes, routine maintenance, and the wages of the driver. By evaluating both the ownership and operating costs together, the company can understand how much it truly costs to keep that truck on the road.

Now let us work out examples on how to estimate the equipment cost using these two methods.

Estimating equipment costs involves using standard methods to calculate costs over time. In this case, two methods are presented for estimating: the Caterpillar method and Peurifoy's approach. Each method has its own formulas and considerations that help professionals estimate costs accurately based on various parameters such as equipment type, usage, and relevant costs.

Imagine you are trying to estimate the total cost of renting a construction crane. You would look at not just the rental price but also the fuel used during operation, maintenance costs, and any wages necessary for the operator. By using different estimation methods, you can find out what your final expenses will be, just as you would do for a truck or delivery vehicle in a fleet.

It is off-highway truck; why we call it as off-highway? This truck is not permitted on the public highways. It is heavy equipment, high-end equipment, and will be operated only in project sites.

Off-highway trucks are specialized vehicles designed to operate on construction and mining sites, rather than on public roads. This designation is important because it impacts how they are used, maintained, and what costs are associated with them. These trucks tend to have higher capabilities and costs due to their robust construction and specialized features.

Think of an off-highway truck as a large bulldozer used on construction sites but not allowed on city streets. Just as this bulldozer is built for heavy lifting and rough terrain, off-highway trucks are designed to handle specific tasks within defined environments where their capabilities can shine.

The initial cost is given so it was purchased with the delivery price of 3 crores. The tire cost of this machine is 11 lakhs. The interest rate is 8%, insurance is 2%, and taxes are 3%.

In this section, we identify the components of the ownership costs for the equipment. The initial purchase cost of the truck is 3 crores, with additional costs for tires, interest on financing, insurance, and taxes. Each of these components factors into the total ownership cost and influences budgeting and financial planning for the equipment's use.

Consider buying a new car. The initial price is just part of the total cost. You also need to consider the tires, which have a replacement cost, interest on any financing you have taken out, mandatory insurance, and taxes. Each of these contributes to the overall cost of owning that vehicle.

Depreciation = (Initial price - Tire cost) / Useful life. The useful life derived is 12.5 years, calculated from expected machine usage.

Depreciation is a method for allocating the cost of an asset over its useful life. In this context, we calculate how much value the truck loses each year based on its initial cost, minus the tire cost, divided by its useful life. This is important for accounting and helps in understanding the financial impact of owning the equipment.

If you buy a laptop for 1000 dollars and it is expected to last five years, you could depreciate its value by 200 dollars each year (1000 / 5). This helps you to know how much value the laptop has lost annually over its lifespan.

So total hourly ownership cost equals hourly depreciation, interest, insurance, and taxes which sums up to ₹ 2713.00.

To find the total hourly ownership cost, we add together the hourly costs of depreciation, interest on the investment, insurance, and taxes. Each of these costs contributes to the ownership burden of the equipment and helps in setting rental or service rates accordingly.

Continuing with the car analogy, total monthly ownership costs would include your car loan payment, insurance, and taxes. When it's time to budget, you’ll want to know your total monthly costs, which enables you to set aside the right amount of money each month.

Now let us move on to the operating cost estimation. The average fuel consumption factor is 0.09 liters per horsepower.

Operating costs encompass every expense necessary to keep the equipment running. One significant component is fuel consumption. Understanding fuel efficiency is crucial for accurate cost estimations, enabling owners to plan operational costs effectively based on projected usage patterns and fuel prices.

If you think of running a household, just like tracking how much gasoline goes into your car each week, knowing how much fuel your construction truck consumes helps you better estimate what your total expenses will be for fuel each month.

So now add all your operating cost components, fuel cost, FOG cost, tire cost, and repair cost to get the total operating cost as rupees 3209.29 per hour.

To compute the total operating cost, you sum the individual operating cost components such as fuel costs, maintenance (FOG costs), tire usage, and repair costs. Understanding these daily operational costs is essential for budgeting and will inform pricing strategies for services related to the equipment.

Imagine running a bakery. You have to add up the costs of flour, sugar, gas for the ovens, and wages for the staff. Just as those add up to determine your baking costs, the operating costs for heavy equipment are calculated similarly, ensuring you know what it takes to run your operations smoothly.

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