2.3. Total Cost Calculation Using Caterpillar Method

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

This chunk introduces the concept of total cost calculation in machinery and equipment management. It explains that to find the total cost, one must sum three key components: ownership costs, operating costs, and wages. This approach follows the guidelines established by Peurifoy, a recognized authority in construction engineering.

Imagine you are planning a party. To find out how much it will cost, you would add up the costs of food (operating costs), rental space (ownership costs), and tips for staff (wages). This total gives you a clear understanding of the overall expense.

Now let us workout from examples on how to estimate the equipment cost using these 2 methods.

Here, the discussion shifts to practical application through examples. Specifically, it refers to estimating the cost of a dump truck, which is categorized as an 'off-highway' truck, meaning it operates exclusively on construction sites and is not street legal.

Consider a specialized delivery truck used for transporting goods within a factory. Just like the truck can only operate on factory grounds, the dump truck is designed solely for project sites, which impacts its cost structure and how we calculate its expenses.

Now let us calculate the depreciation first. Depreciation = (Initial price − Tire cost) / Useful life.

This chunk highlights how to calculate the depreciation of the dump truck's cost. Depreciation spreads out the initial expense of the truck over its useful life, which is determined by how much it is projected to be used over the years.

Think of a new smartphone that costs $1000. If you expect to use it for 5 years, you might factor in that each year, it loses value (depreciates) by$200. This helps you understand the cost of using the smartphone over its lifespan.

The other associated costs are the interest rate which is nothing but 8% insurance 2% and taxes 3%.

In this segment, the focus is on additional ownership costs that need to be factored in. These costs include interest on the cost of investment, insurance fees, and taxes, each expressed as a percentage of the average machine value.

If you buy a house, you not only consider the mortgage payment but also property taxes, homeowner's insurance, and interest on the mortgage. Similarly, the dump truck incurs several additional costs beyond its initial purchase price.

Now let us calculate all the total ownership cost components, which are the hourly depreciation, interest, insurance, and taxes.

This chunk explains how to compile all ownership cost components into a single hourly cost. By calculating each cost component as an hourly rate and summing them up, one can better understand the financial implications of operating the equipment.

Consider how a gym calculates the hourly cost of maintaining a gym. They would look at costs such as rent, staff wages, maintenance fees, and divide these by the number of hours the gym is open. This gives them a clear view of how much it costs to operate per hour.

Let us move on to the operating cost estimation.

This passage transitions to calculating operating costs, which are the recurring expenses incurred through the operation of the dump truck. This includes fuel consumption, maintenance, labor, and other operational expenditures.

When running a restaurant, daily expenses such as ingredient costs, employee wages, and utilities are considered operating costs. Understanding these is crucial for determining the profitability of the restaurant just like it's essential for managing a dump truck.

So you know that the total hourly ownership cost, operator wages, and total hourly operating cost. Add all this 3 you will get the total equipment cost.

The concluding part emphasizes the importance of combining all the computed costs (ownership costs, operator wages, and operating costs) to arrive at the total equipment cost per hour, which is crucial for budgeting and financial planning in construction projects.

Just like calculating the total cost of a road trip involves summing fuel costs, food expenses, and accommodation, calculating the total cost of operating a dump truck requires tallying all related costs to understand its financial demands.

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