Professional Courses
Industry-relevant training in Business, Technology, and Design to help professionals and graduates upskill for real-world careers.
Categories
Interactive Games
Fun, engaging games to boost memory, math fluency, typing speed, and English skills—perfect for learners of all ages.
Typing
Memory
Math
English Adventures
Knowledge
Enroll to start learning
You’ve not yet enrolled in this course. Please enroll for free to listen to audio lessons, classroom podcasts and take practice test.
Interactive Audio Lesson
Listen to a student-teacher conversation explaining the topic in a relatable way.
Understanding Total Operating Costs
Unlock Audio Lesson
Today, we'll dive into how total operating costs are calculated, particularly for machinery like dump trucks. The key components are ownership costs, operating costs, and wages. Who can explain what ownership costs include?
Ownership costs probably include the initial price and any depreciation?
And also, things like interest on investment and insurance costs, right?
Exactly! Ownership costs refer to all expenses incurred from owning the machine. Let's remember this with the acronym 'DII' — Depreciation, Interest, and Insurance. Now, what about operating costs?
Calculating Costs Using Given Examples
Unlock Audio Lesson
In our example, the dump truck cost is 3 crores. If we subtract the tire cost of 11 lakhs, how do we calculate annual depreciation?
We need to use the formula: (Initial cost - Tire cost) / Useful life, which is 12.5 years.
That means annual depreciation is... 23,12,000 per year!
Yes! And per hour, it's approximately ₹1,445. Great job. This method helps us break down complex calculations into manageable pieces.
Understanding Operating Costs
Unlock Audio Lesson
Next, let’s examine operating costs. Why do you think estimating fuel consumption is essential?
Because it's a recurring expense that impacts our cost analysis heavily!
And it varies depending on the working conditions too, which we see in our examples!
Exactly! Estimating fuel costs accurately is crucial for overall expense forecasting.
Utilizing the Peurifoy Method
Unlock Audio Lesson
Let's move on to the Peurifoy method for calculating the total cost. Can someone summarize how it differs from the previous method?
It takes into account the time value of money and repairs based on depreciation!
So instead of just averaging costs annually, we are trying to accurately reflect cash flows over time?
Correct! This gives a more realistic representation of costs. We'll always remember with 'TIME' — Timing, Investment, Money, and Efficiency!
Introduction & Overview
Read a summary of the section's main ideas. Choose from Basic, Medium, or Detailed.
Quick Overview
Standard
In this section, we explore how to calculate total operating costs using specific examples, focusing on the breakdown between ownership costs, operating costs, and wages. The content emphasizes methods and guidelines for estimating these costs, particularly for heavy machinery like dump trucks, detailing the variables that impact calculations.
Detailed
Total Operating Cost Calculation
This section discusses how to compute the total operating cost by taking into account both ownership costs and operational expenses. Following the Peurifoy guidelines, the process begins with aggregating the ownership cost, operational costs, and operating wages. To illustrate these calculations, specific examples involving a heavy dump truck are presented.
The total initial cost of the truck is given as 3 crores, with associated costs such as tire expenses and operational rates like fuel and wages. The section breaks down each aspect, calculating annual cost components like depreciation, interest, insurance, taxes, and repair costs, based on given assumptions. Practical formulas are provided to allow students to replicate these calculations on similar equipment. Furthermore, the section emphasizes the importance of ensuring accurate cost estimation through the appropriate use of handbooks and data sources.
Audio Book
Dive deep into the subject with an immersive audiobook experience.
Introduction to Total Operating Cost
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
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.
Detailed Explanation
This chunk introduces the concept of calculating total operating costs in a systematic manner. The total operating cost includes ownership costs, which are the costs associated with owning equipment, as well as operating costs, which encompass the expenses incurred while the equipment is actively used, including wages for operators. The mention of the Peurifoy guidelines indicates that there are established methodologies for calculating these costs, suggesting a structured approach to cost estimation.
Examples & Analogies
Imagine you are budgeting for a new car. In addition to the purchase price (ownership cost), you also consider fuel, insurance, and maintenance costs (operating costs). Just like total operating cost calculations, you need to combine all these expenses to understand how much you'll truly spend on your car.
Calculating Equipment Costs
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
So, you can see this problem in this problem you can estimate the cost for the dump truck. It is an off-highway truck...
Detailed Explanation
This chunk explains the specific example of estimating the cost for a dump truck, which is categorized as off-highway equipment. Off-highway trucks are designed for use at construction sites or other specialized areas and are not allowed on public roads. The initial cost of the truck is stated as 3 crores, with an additional tire cost of 11 lakhs. This sets the stage for further calculations regarding total cost estimation, emphasizing the high value and specialization of such equipment.
Examples & Analogies
Consider building a swimming pool in your backyard. You might spend a significant amount just on the pool itself (initial cost) and additional funds on tiles, equipment, and maintenance (operating costs). Just like estimating costs for the dump truck, you need to figure out not only the initial investment but also the ongoing expenses to truly understand what building your pool will cost.
Ownership Cost Components
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
The other associated cost are the interest rate which is nothing but 8%, insurance 2%, and taxes 3%.
Detailed Explanation
In this chunk, we go into the different components associated with ownership costs, which include interest on the investment, insurance, and taxes. These rates need to be calculated based on the average value of the equipment. For instance, an 8% interest rate on the cost means that you need to account for the costs of financing the dump truck in your total ownership expense, along with necessary insurance and taxes.
Examples & Analogies
If you're paying for your house through a mortgage, in addition to the mortgage payment, you also need to include property taxes and homeowner's insurance in your monthly budgeting. Similarly, when assessing the total cost of owning heavy machinery, it's crucial to consider these additional financial obligations.
Annual Use and Fuel Consumption
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
The truck is expected to have annual use of 1600 hours... diesel consumption of the truck for average working condition is 0.09 liters per hour per horsepower.
Detailed Explanation
This chunk highlights the projected annual usage of the dump truck, which is 1600 hours. This metric is critical because it affects calculations for depreciation and operating costs like fuel. The fuel consumption rate is also provided, indicating that the truck consumes 0.09 liters of diesel for every horsepower it generates. This data is fundamental for estimating the total operating cost as it directly correlates with fuel expenses.
Examples & Analogies
Think about how much you drive your car in a year. If you know your car uses a specific amount of fuel per mile, you can estimate how much you'll spend on gas for the entire year. This same principle applies to the dump truck, where knowing its operation hours and fuel consumption helps you forecast its fuel costs for the year.
Calculating Depreciation and Hourly Costs
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
To calculate the depreciation, we use the formula: (Initial price - Tire cost) / Useful life.
Detailed Explanation
Here, the method to compute depreciation, a key component of ownership cost, is introduced. The formula provided helps estimate how much value the dump truck loses each year due to wear and tear. It takes into account both the initial price and the tire cost while dividing by the useful life of the truck (which has been calculated as 12.5 years). This step is essential for determining the cost allocated to depreciation on an hourly basis as well.
Examples & Analogies
Imagine you buy a smartphone costing $1000, and it's expected to last five years. To find out how much value it loses each year, you'd divide the cost by five. This depreciation helps you understand the real expense of having that smartphone over time, similar to how depreciation affects the dump truck's costs.
Total Operating Cost Calculation
Unlock Audio Book
Signup and Enroll to the course for listening the Audio Book
Now let us move on to the operating cost estimation... Total hourly operating cost = 3209.29 per hour.
Detailed Explanation
This part wraps up the calculations by presenting how different operating components come together to form the total operating cost. It includes fuel costs, FOG (Filter, Oil, Grease) costs, tire costs, and repair costs. By summing these values, one arrives at the total operating cost per hour of running the dump truck, which is critical for budgeting and financial planning in construction projects.
Examples & Analogies
Think about how you may calculate the total cost of running a coffee shop. You would need to factor in the cost of coffee beans, milk, cups, labor, and more. Summing these costs gives you the total cost of making a cup of coffee, which can help determine the pricing strategy for your shop. Similarly, calculating all the operating costs for the dump truck provides insights into how to charge for its use on various projects.
Definitions & Key Concepts
Learn essential terms and foundational ideas that form the basis of the topic.
Key Concepts
-
Total Operating Cost: The sum of ownership and operating costs associated with equipment use.
-
Ownership Cost Calculation: Involves depreciation, interest, insurance, and taxes.
-
Operating Cost Components: Include fuel, repair costs, and wages paid to operators.
-
Peurifoy Method: A more detailed and time-sensitive approach to computing costs.
Examples & Real-Life Applications
See how the concepts apply in real-world scenarios to understand their practical implications.
Examples
-
A dump truck purchased for 3 crores incurs annual depreciation of ₹23,12,000 when its tire costs are deducted.
-
With a fuel consumption factor of 0.09 liters per horsepower, operating costs can be estimated per hour based on type and operating conditions.
Memory Aids
Use mnemonics, acronyms, or visual cues to help remember key information more easily.
🎵 Rhymes Time
-
To calculate what it costs to run, think about the things you’ve done. Ownership, wages, fuel in the truck. Add them up, and you'll have luck!
📖 Fascinating Stories
-
Imagine a worker, Joe, who has a special dump truck. Each day he checks his expenses: fuel, wear, and his pay. By adding these, he knows just what he needs for the day!
🧠 Other Memory Gems
-
Remember 'O-WO-FR' for Total Cost: Ownership, Wages, Operating cost, Fuel, Repair.
🎯 Super Acronyms
Use 'DII' for Ownership Cost components
- Depreciation
- Interest
- Insurance.
Flash Cards
Review key concepts with flashcards.
Glossary of Terms
Review the Definitions for terms.
-
Term: Ownership Costs
Definition:
The total costs associated with owning equipment, including depreciation, interest, and insurance.
-
Term: Operating Costs
Definition:
Costs incurred during the operation of equipment, including fuel, maintenance, and wages.
-
Term: Depreciation
Definition:
The reduction in the value of an asset over time, often used to calculate annual ownership costs.
-
Term: Peurifoy Method
Definition:
A method developed by Peurifoy for estimating equipment costs that incorporates the time value of money.
-
Term: Operating Wages
Definition:
The hourly wages paid to operators of the equipment.