Using the following information, determine the ownership and operating costs for a scraper.

Question

Actual cost (delivered)—$162,000 including tires
Horsepower rating—200 hp
Cost of tires—$6,000
Salvage value—$32,400
Useful life—6 years at 1,400 hours per year
Total interest—7 percent per year
Insurance—$3,240 per year
Taxes—$3,645 per year
Storage—$2,025 per year
Fuel cost—$3.90 per gallon
Fuel consumption rate—0.06 gallons per hp per hour
Power utilization—85 percent
Use factor—40 minutes per hour (66.67 percent)
Lubrication—8 quarts of oil at $4.50 per quart
Oiler labor—2.2 hours at $27.65
Lubrication schedule—every 100 hours
Oil filter—$8.70
Grease—1 tube per 8 hour shift at $7.00
Air filter—$17.00 changed every 200 hours
Life of tires—3,500 hours
Repair to tires—12 percent of deprecation
Repairs to equipment—120 percent over useful life

Answer 1

The ownership costs are as follows:



Deduct the cost of the tires form the purchase price:



P = $162,000 – $6,000 = $156,000



Find the depreciation and interest cost per hour:







Depreciation & interest cost = $28,199 / 1,400 hr = $20.14 per hr



Find the hourly cost per hour for taxes, insurance, and storage:



Taxes cost = $3,645/ 1,400 hr = $2.60 per hr



Insurance cost = $3,240 / 1,400 hr = $2.31 per hr



Storage cost = $2,025 / 1,400 hr = $1.45 per hr



Total ownership costs = $20.14 per hr + $2.60 per hr + $2.31 per hr + $1.45 per hr

Total ownership costs = $26.50 per hr



The operating costs are as follows:



Fuel cost = 200 hp × 0.6667 × 0.85 × 0.06 gal per hp per hr × $3.90/gal = $26.52 per hr



Lubrication cost = 8 quarts of oil × $4.50/quart = $36.00



Labor cost = 2.2 hr × $27.65/hr = $60.83



Oil filter = $8.70



Total cost for oil change = $36.00 + $60.83 + $8.70 = $105.53



Cost per hour = $105.53 / 100 hr = $1.06 per hr







Air filter cost = $17.00 / 200 hr = $0.09 per hr



Lubrication cost = $1.06 per hr + $0.88 per hr + $0.09 per hr = $2.03 per hr



Find the hourly cost for tires:



Tire depreciation = $6,000 / 3,500 hr = $1.71 per hr



Tire repair = 0.12 × $1.71/hr = $0.21 per hr



Tire cost = $1.71 per hr + $0.21 per hr = $1.92 per hr







Total operation costs = $26.52 per hr + $2.03 per hr + $1.92 per hr + $22.29 per hr



Total operation costs = $52.76 per hr



Total ownership costs = $26.50 per hr + $52.76 per hr = $79.26 per hr