e) Equipment operator wages

The operator cost includes the hourly wages and benefits paid by the company to the operators. It includes normal wages, workmen's compensation insurance premium, fringe benefits, bonus etc. The operator wages vary from project to project. The operator cost is normally calculated as a separate cost category and is added to other components of operating cost.

f) Cost of replacing high-wear items

It represents the cost of high-wears items and these items have a shorter life as compared to the service life of the equipment. The high-wear items include blades, cutting edges, drill bits, bucket teeth etc. The expected life of these items can be estimated from past records or from manufacture guidelines. The hourly cost can be calculated by dividing the unit cost by estimated life (in hours).

g) Cost of mobilization, assembly and demobilization

This cost includes transportation charges from one project site to another, cost required for getting road permits, unloading charges, cost of assembly at the project site etc. The hourly cost can be calculated by dividing the total cost by the number of operating hours.

In the following examples, the calculation of equipment ownership and operating costs is demonstrated.

Example - 1

The initial cost of a piece of construction equipment (pneumatic tire mounted) is Rs.5500000. The estimated salvage value of the equipment is Rs.900000. The useful life of the equipment is 10 years. The equipment will operate 2000 hours per year. The cost of one set of tires is Rs.400000. A new set of tires will be replaced at the end of every 3 years of operation. In addition a repair work of cost Rs.450000 is expected at the end of year ‘6'. The interest rate is 8% per year. Find out the total cost per hour for the construction equipment considering time value of money.

Solution:

For calculating the hourly ownership and operating cost by considering time value of money, first the equivalent uniform annual cost is calculated at the given interest rate and is then divided by the number of operating hours per year.

As the initial cost includes cost of tires, tire cost is subtracted from initial cost of the equipment for calculating ownership cost, as cost of tires is considered as an element of operating cost.