Calculate Equipment Cost Per Hour

How to Calculate Equipment Cost Per Hour

Understanding how to calculate equipment cost per hour is essential for effectively managing and budgeting for machinery expenses in construction, manufacturing, and other industries. This calculation helps in determining the total cost of owning and operating equipment per hour of use.

Essential Components for Calculation

To accurately compute the equipment cost per hour, you must consider both Total Ownership Costs and Total Operating Costs:

Formula for Calculation

The formula required for calculating the equipment cost per hour is straightforward and can be represented as follows:Cost per Hour = (Total Ownership Costs + Total Operating Costs) / Equipment Usage.

To perform this calculation effectively:

1. Accumulate all ownership-related expenses to determine Total Ownership Costs.
2. Gather data on all operating costs, ensuring each cost component is accounted for comprehensively.
3. Track and record the total number of hours the equipment is in operation to determine Equipment Usage.

Correct application of this formula will yield a reliable per-hour cost that aids in making informed decisions regarding equipment usage and maintenance scheduling.

Factors Influencing Cost Per Hour

Few factors such as ease of operation, the ability of the equipment to predict and prevent maintenance issues, and the design that facilitates easy servicing contribute significantly to modifying the equipment's operational cost per hour. Equipment that scores high in these aspects typically incurs lower operational costs and maximizes productivity, thus optimizing cost per hour.

By integrating these elements into your calculation, you can ensure that you calculate the cost per hour of your equipment with high accuracy, leading to better resource management and financial planning.

How to Calculate Equipment Cost Per Hour

Understanding the equipment cost per hour is crucial for effective budgeting and management of construction projects. This cost metric considers all ownership and operating expenses, providing a clear view of the financial impact of using machinery over time.

Step-by-Step Calculation

To calculate the equipment cost per hour, use the formula: Cost per Hour = (Total Ownership Costs + Total Operating Costs) / Equipment Usage. Total ownership costs encompass all expenses incurred from owning the equipment, while total operating costs include operational expenses up until the calculation point.

First, sum up the total ownership and operating costs. Then, divide this sum by the equipment’s total hours of usage in hours, which gives you the cost per hour. It's crucial to update and include all relevant costs to ensure accuracy.

Example Calculation

Consider a Bobcat skid steer with $50,000 in total ownership costs and $25,000 in operating costs, utilized for a total of 1,000 hours. The equation would be: ($50,000 + $25,000) / 1,000 = $75.00 per hour.

Detailed awareness and careful tracking of these costs help optimize spending and increase the operational efficiency of your machinery. For accurate management decisions, always consider current machine hours and the respective direct costs.

Examples of Calculating Equipment Cost Per Hour

Example 1: Construction Equipment

To calculate the hourly cost of a bulldozer costing $120,000 with an expected life of 7 years and 1000 operating hours per year, consider additional annual costs like maintenance at $10,000 and insurance at $5,000. Using the formula (Initial Cost + Annual Maintenance + Annual Insurance) / (Life Expectancy * Operating Hours), the calculation will be ($120,000 + $10,000 + $5,000) / (7 * 1000) = $19.29 per hour.

Example 2: Manufacturing Machinery

For a high-precision CNC machine with a purchase price of $250,000, operating 2000 hours per year over 10 years, with $15,000 annual maintenance, calculate the hourly cost. Implementing the same formula: ($250,000 + $15,000) / (10 * 2000) results in $13.25 hourly cost.

Example 3: Transportation Vehicle

A delivery truck that costs $75,000 with a useful life of 5 years and running 1500 hours annually, incurrs $8,000 maintenance and $3,000 insurance costs yearly. Calculate using the formula ($75,000 + $8,000 + $3,000) / (5 * 1500) to get $11.20 per hour.

Example 4: Farm Equipment

For a tractor priced at $85,000 operating 1200 hours a year for 8 years with $5,000 yearly in maintenance costs, calculate its hourly operation cost by ($85,000 + $5,000) / (8 * 1200), equating to $9.38 per hour.

Example 5: IT Equipment

Calculate the hourly cost of a server that has an initial cost of $30,000, a lifespan of 4 years, and operates around 8760 hours per year, with an annual maintenance cost of $2,000. Using ($30,000 + $2,000) / (4 * 8760), the cost computes to around $0.91 per hour.

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