Mansoor Azam Qureshi NUST Islamabad

Small

Tools and Consumables. Blades, drill bits etc Shared Equipment. Shared and used over period of time as work progresses. Picks , shovels etc. Task Specific Equipment. Costly equipment used for specific work and mobilized for period of work. Excavator, cranes etc.
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Overhead charges include items such as the costs of operating the maintenance force and facility including (a) wages of the mechanics and supervisory personnel, (b) clerical and records support, and (c) rental or amortization of the maintenance facility (i.e., maintenance bays, lifts, machinery, and instruments). The profit may be expressed as a percentage of total hourly operating costs, which, in turn, may be expressed in cubic yards of material moved or in some other bid-relevant measure. The amount of profit per cubic yard, square foot, or linear foot is a judgment that contractors must make based on their desire to win the contract and the nature of the competition.

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Certain costs that accrue whether the piece of equipment is in a productive state or not. These costs are fixed and directly related to the length of time the equipment is owned. Therefore, these costs are called fixed, or ownership, costs. The term fixed indicates that these costs are time dependent and can be calculated based on a fixed formula or a constant rate basis.
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 Initial

capital cost Depreciation Investment (or interest) cost Insurance cost Taxes Storage cost Salvage value Major repairs and overhaul
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 This

cost is incurred for getting equipment into the contractors yard, or construction site, and having the equipment ready for operation. Price at factory (less consumable) $ 80000 extra equipment 0 sales tax and duties 4000 Cost of shipping 2000 Cost of assembly and erection 1000 Initial capital cost 87000
Mansoor Azam Qureshi 24 October 2013

 Salvage

value is the cash inflow a firm receives if a machine still has value at the time of its disposal at a future date. Machine's possible secondary service applications affect the amount an owner can expect to receive. A machine having a diverse and layered service potential will command a higher resale value. Guidance in making salvage value predictions can be fairly easily accessed from auction price books.
Mansoor Azam Qureshi 24 October 2013

 Depreciation

represents the decline in market value of a piece of equipment due to age, wear, deterioration, and obsolescence. Physical deterioration. Wear and tear of the machine Economic decline. Obsolescence.

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 Straight-line

Depreciation Sum-of-year digits Depreciation. Declining Balance Depreciation. Production Method. Depreciation based on Current Law.

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 Initial

Investment =$16000 Salvage value = 1000 Life =5 years Depreciation = (16000 1000)/5 = 3000 per year
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 Initial

cost = 16000 Salvage value = 1000 Depreciable cost = 15000 Life = 5 years Sum of Years = 1+2+3+4+5=15 Depreciation

1st year = 5x15000/15=5000 2nd year= 4x15000/15=4000 3rd year = 3x15000/15=3000 4th year = 2x15000/15=2000 5th year = 1x15000/15=1000
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Rate for new equipment = 200%/n =200/5 = 40%

Rate for used equipment = 150%/n= 150/5 = 30%

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Investment (or interest) cost represents the annual cost (converted into an hourly cost) of capital invested in a machine . If borrowed funds are utilized for purchasing a piece of equipment, the equipment cost is simply the interest charged on these funds. If the equipment is purchased with company assets, an interest rate that is equal to the rate of return on company investment should be charged The average annual cost of interest should be based on the average value of the equipment during its useful life.

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Average value of Equipment without salvage value

P = IC(n + 1) 2n Average value of Equipment with salvage value P = IC(n+1) + S(n-1) 2n n= life in years S= salvage value

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Let us assume that we have a piece of equipment that has an initial cost or base value of $16,000 borrowed at 5% interest and a salvage value of $1,000. The service life is 5 years.
Average annual value when no salvage value accrue = 16000x(5+1) = 9600 2x5 Investment cost = 9600x5/100 = 480 per year Average annual value when salvage value is available = 16000x(5+1) + 1000x(5-1) = 10000 2x5 Investment cost = 10000x5/100 = 500 per year

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 Insurance

cost represents the cost incurred due to fire, theft, accident, and liability insurance for the equipment. cost represents the cost of property tax and licenses for the equipment.
cost includes the cost of rent and maintenance for equipment storage yards, the wages of guards and employees involved in moving equipment in and out of storage, and associated direct overhead.
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Tax

Storage

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Major repairs and overhauls are included under ownership cost because they result in an extension of a machine's service life. They can be considered as an investment in a new machine. Because a machine commonly works on many different projects, considering major repairs as an ownership cost prorates these expenses to all jobs. These costs should be added to the basis of the machine and depreciated.

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Annual Depreciation Expense Straight-Line Depreciation Units-ofSum-of-theActivity Years'-Digits Depreciation Depreciation DoubleDecliningBalance Depreciation

Year 1 Year 2 Year 3 Year 4 Year 5

$16,000 16,000 16,000 16,000 16,000 $80,000

$22,000 14,000 18,000 16,000 10,000 $80,000

$26,667 21,333 16,000 10,667 5,333 $80,000

$36,000 21,600 12,960 7,776 1,664 $80,000

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