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Custom Cost Evaluator > User Guide > Cost Results and Formulas

Introduction
Costing Assumptions and Methodology
Cost Adjustment Definitions - Ownership
Cost Adjustment Definitions - Operating
Cost Results and Formulas
Multiple Shifts and Standby Adjustments
Default Settings

Cost Results and Formulas

The Custom Cost Evaluator (CCE) lists hourly ownership and operating costs for construction equipment (fixed and variable costs are presented in this product). The fixed costs--depreciation and equipment-related overhead--begin when equipment is purchased and continue regardless of equipment use. The variable costs--overhaul, field repair, fuel, lube, tires, and ground engaging components--occur during machine use and are therefore accrued during actual operating hours.

The factors used to develop these costs are based on average equipment use and job conditions. These factors are reviewed continuously by the Custom Cost Evaluator research staff and are adjusted according to contractors' experience reported in surveys and information on costs reported by equipment manufacturers.

Depreciation
The Depreciable basis includes the discounted Manufacturer’s list price plus sales tax and original freight costs, minus the cost of a new set of tires (if wheel mounted), and minus the salvage value at the end of the machine's economic life.  The depreciation period is expressed in years, for the purposes of this guide, and is calculated by dividing the Economic life hours by the default annual use hours. 

Depreciation refers to capitalization of the acquisition cost of equipment over its economic life; it is not meant to express the amounts used for taxation.

Cost of Facilities Capital (CFC)
Cost of Facilities Capital (CFC), which is not the same as interest charges, addresses the cost of money invested, whether the machinery is purchased with cash or financed.  CFC is calculated by the following formula:

{[(N-1) x (1+S) + 2] x CMR} / (2 x N) = CFC factor
(CFC factor x P)/AH = Hourly CFC Cost

Where:

N = Economic life in years (Economic hours/Annual Hours)
S = Salvage value percentage
CMR = Cost of money rate (as set by the Treasury Department each January 1 and July 1)
P = Manufacturer’s List Price
CFC = Cost of facilities capital
AH = Annual hours

Equipment Overhead
Equipment overhead costs include the direct costs of normal risk insurance and property taxes along with the indirect costs of storage, security, mechanics supervision, inspection, licenses, and record keeping.

Profit, project overhead, and general company overhead costs such as office facilities and supplies are not included.

Overhead is listed as one total hourly dollar figure. Some of these costs may be recovered in project or general company overhead. To avoid duplication of recovered costs, adjustments may be necessary for items in the total overhead cost. The following approximate breakdown of the overhead costs shows the percentage by which the specific overhead items can be modified or eliminated from the total overhead costs:

  Approximate % of Total Overhead
Insurance 56%
Taxes 22%
Licenses 4%
Storage, Security 7%
Record Keeping 2%
Mechanics' Supervision, Inspection 9%

Overhaul
Ownership rates include an allowance for major overhaul costs necessary to keep a machine functional throughout its economic life.  This allowance covers the periodic rebuilding of engines, transmissions, undercarriages, hydraulic pumps, cylinders and other major components. 

This item does not include complete overhauls and remanufacturing, the type of which is done to extend the economic life of the equipment.  These types of overhaul and remanufacturing costs should be treated as capital expenditures, and depreciated over a newly established economic life.

Some adjustments to the base rates are appropriate.  If, for example, the economic life is shortened due to severe working conditions, then overhaul Labor and Parts costs should be adjusted to reflect the faster accrual rate.  This principal does not apply however, if the economic life is adjusted for tax accounting purposes or for any other reason except actual job conditions.

Actual overhaul and field repair costs increase with equipment age, regardless of job conditions. The Custom Cost Evaluator calculates these costs by assuming a steady accrual of funds that will be used when needed. This means that the amount accrued in earlier stages of equipment life will be more than immediately needed, but will be offset by the higher funds needed toward the later stages of equipment life.

Overhaul - Labor
Overhaul labor is accrued for each machine working-hour to offset charges incurred to replace, rebuild and recondition major components and are to be included whether repair is performed in the contractor's maintenance facility or at an outside shop.  For adjustments and comparisons, the average labor cost per hour can be related to the average mechanic's wage (including fringe benefits) published. 

Overhaul - Parts
Overhaul parts costs are accrued for each machine working-hour to offset costs incurred for periodic replacing, rebuilding and reconditioning of major components, such as engines, transmission, undercarriages, etc.

Field Repair
Operating cost includes field repair defined as routine, daily servicing of the equipment and would include repairing, replacing or adjusting small components such as pumps, carburetors, injectors, batteries, filters, belts, gaskets, and hoses.

The cost of extraordinary operating expendables is not included.  Certain ground engaging components, such as hammer and drill bits, drill steel, augers, saw blades, and tooth-bits, are normally excluded from the "Estimated Operating Cost/Hr." because of their highly variable wear patterns. It is recommended that these costs be recovered separately

Field Repair - Labor
Field repair labor costs are accrued on a machine working-hour basis to offset charges incurred to perform normal field repair and maintenance.  Costs listed under this heading represent an annual average over the economic life of the equipment.

For adjustments and comparisons, the average labor cost per hour can be related to the average mechanic's wage (including fringe benefits) published. 

Field Repair - Parts
Field repair parts costs are accrued on a machine working-hour basis to offset the costs for supplying parts necessary to keep the equipment operating in good condition. These parts consist of anything short of a major component overhaul or replacement.  This annual cost includes “miscellaneous supply parts” referred to in the cost adjustment section.  Costs listed under this heading represent an annual average over the economic life of the equipment.

Ground Engaging Components (G.E.C.)
These costs include repair and/or replacement, either in whole or part, of ground engaging components such as pads, drums, teeth and cutting edges.

Tires
Tire costs include the repair and/or replacement of tires.  Listed tire costs are based on the current price of tires, typical contractor discounts, and the tire life listed which reflects average working conditions.

Electric/Fuel
Fuel costs are calculated using average load factors, equipment horsepower, and the price of fuel per gallon. Actual fuel consumption will depend on variations in load factors, elevation, engine performance, operator efficiency, and terrain.

Lube
Lubrication includes the costs of oils, grease, coolants and filters.  Labor and ancillary equipment involved in servicing is also included.  (e.g.  The cost of a lube truck and operator is included in this cost).  For dual engine models, costs for both equipment and carrier are included.

 

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