Construction Equipment and Plant

Management
 Chapter Three
Equipment Cost Estimation
Generally, there are three schemes of equipments access: Own,
Lease or Rent.

Direct ownership of equipments: through cash

purchase of brand new or used machine.
Leasing: Is essentially renting. The fundamental difference is
that:
• It is long term (relative to machine economic life)
• lessee will often be provided with either of the options of
Purchasing the machine, for a predetermined amount, at the
end of the leasing period.
• Renew the lease, if needed;
• Return the machine at the end of lease period
Renting: No option for acquiring equity.
•Contract agreement, along with possible security, will stipulate
Terms and Conditions
Own or rent?
Buy Lease
Advantage Advantage
 Provides guaranteed usage  Softens cash flow constraints
Disadvantage Disadvantage
 Ties working capital on the  Availability during peak
asset period
Advisable usage  Guarantee of usage
 When there is a large (long  Some demand security
duration) amount of job that Advisable usage
the equipment is specialized  When the quantity of job the
to function equipment is suited is small
(short duration)

Decisions on whether to buy or lease is highly dependent on planned use hour

of an equipment
When using owned equipments in the activity cost estimate
breakdowns, contractors shall calculate the associated hourly
costs to operate equipment on the intended project during the
equipment’s economic life.

However, if rented equipments are assumed in the activity cost

breakdowns, contractors shall obtain equipment hourly rental
rates directly from equipment leasing companies.

These associated equipment costs are mainly classified into three

categories as follows:
 Equipment owning costs

Equipment operating costs

Operator’s salary and benefits

In using or renting out an equipment thus, an equipment owner

should properly evaluate the above costs so that he recoups an
equivalent value from his machine.
 3.1 – EQUIPMENT OWNING COSTS

Equipment owning costs are all these costs in which the owner
of the equipment expends throughout the economic life of the
equipment whether the equipment is working or not.

These costs include mainly the depreciation cost of the

equipment with the consideration of its salvage value, Erection
and installation costs, major repairs and overhauling costs,
property taxes and insurance charges.
 Ownership costs
+ Economic life
Pr
of Profit life
it 0
s Physical life

Physical life: the age at which a machine will

be worn out to a point that
it can’t reliably produce. At this point, it will
Age of machine
be scrapped.
Replacement analysis
Profit life: is the life over which the machine can earn a
profit.
Economic life: The time period over which the
equipment’s profits are
maximized
 A-Depreciation Cost
Depreciation is a decrease in market value, and or decrease in the
value to the owner. 
it can be caused by deterioration, obsolescence.
In order to calculate the hourly equipment depreciation cost, the
contractor shall calculate the total equipment delivered price which
is the total cost of the equipment expended by the contractor until
the equipment is delivered at his workshop starting from the date
of purchase from his suppliers which includes the initial purchase
price, insurance charges, transportation costs and any applicable taxes.
The depreciation cost can be calculated in many different
ways such as the straight line, declining balance, sum of years-
digits and unit production methods. In this case, it is better to
use the unit production depreciation method to calculate the
equipment depreciation cost
Moreover, the cost of capital of the contractor shall be included in
the calculations of the depreciation cost of equipments. Different
contractors do have different cost of capital and contractors are
advised to establish their own cost of capital. However, in the
absence of such data, it is fair to use the lending rate of the
Commercial Bank of Ethiopia which is 7.5% during the month of
March 2006.

Salvage value of the equipment is the other important point to be

considered in calculating depreciation costs. Even though not
reasonable, many contractors prefer to assume zero salvage value
which will actually overestimate the depreciation cost of
equipments.
The salvage value of equipment mainly depends on the type of
jobs and operating conditions where it has been deployed and its
physical conditions.

Accurate salvage value estimates can be obtained from the

contractor’s well recorded previous data, second hand
equipment selling companies, recent auction prices, economic
indices on construction equipments, local equipment dealers
and so on.
However, in the absence of reliable data and market
indications, salvage value of equipment can be assumed 10% of
its delivered price

Once all the required cost related data are obtained such as
equipment delivered price, economic life and its salvage
value, the equipment depreciation cost can be calculated
easily using the time value method.

The time value method recognizes the timing of

equipment cash flows i.e. the delivered price less the cost of
tires at time zero and the salvage value at the future date
which is at the end of its economic life.
The following two examples illustrates how to calculate
depreciation cost components of an equipment and the way
how establishment construction equipment hourly costs for
equipment with crawler mounted and wheel mounted types
 Example 1
Assume a contractor has purchased a new Caterpillar D8R
Bulldozer with a delivered duty paid price of birr 3,871,739.13.
Calculate the hourly cost of the specified Bulldozer.

A. Delivered price ……………………….. Birr 3,871,739.13

B. Cost of tires…………………………….Birr 0.00 (Crawler
mounted equipment)
C. Delivered price less cost of tires (P)…Birr 3,871,739.13

D. Assume the Bulldozer will be engaged partly in works such

as borrow material production and common excavation with
medium impact as well as in heavy rock ripping and dozing
hard rock with high impact conditions.
 Estimated economic life = Assume 10 Years
E. Estimated annual utilization…….. 2000 Hrs
F. Estimated salvage value.…….(S = 10% delivered price)
S = 0.1 * 3,871,739.13 = Birr 387,173.91
G. Estimated cost of capital…………………… (I = 7.5%)
H. Equivalent annual equipment cost of delivered price less cost
of tires
A1 = P * [ I (1+I)n] / [(1+I)n – 1]

A1 = 3,871,739.13 * [0.075(1+0.075)10] / [(1+0.075) 10 – 1]

A1 = 564,057.91 Birr/Year
I. Equivalent annual salvage value

A2 = S * I / [(1+I)n – 1]
A2 = 387,173.91 * 0.075 / [(1+0.075) 10 – 1]
A2 = 27,367.75 Birr/Year
J. Dozer Depreciation Cost per hour (DDC)
DDC = (A1 – A2) / E
DDC = (564,057.91 – 27,367.75)/2000
DDC = 268.35 Birr
Example 2
The same contractor has purchased a new Caterpillar 950G
Wheel loader with a delivered price of birr 1,785,478.26.
Moreover, the price of tires is birr 14,115.22 per tire, which is
birr 56,460.88 for 4 tires. Calculate the hourly depreciation cost
of the specified wheel loader.

A. Delivered price ………………………….Birr 1,785,478.26

B. Cost of tires………………………….….Birr 56,460.88
C. Delivered price less cost of tires (P)…….Birr 1,729,017.38
D. Assume the Wheel loader will be engaged mostly in
continuous loading from stock pile
Estimated economic life = Assume 8 Years
E. Estimated annual utilization……….. 1250 Hrs
F. Estimated salvage value.………….(S = 10% delivered price)
S = 0.1 * 1,785,478.26 = Birr 178,547.83
G. Estimated cost of capital……………………… (I = 7.5%)
H. Equivalent annual equipment cost of delivered price less
cost of tires
A1 = P * [ I (1+I)n] / [(1+I)n – 1]

A1 = 1,729,017.38 * [0.075(1+0.075)8] / [(1+0.075) – 1]

A1 = 295,189.99 Birr/Year
I. Equivalent annual salvage value
A2 = S * I / [(1+I)n – 1]
A2 = 178,547.83 * 0.075 / [(1+0.075) 8 – 1]

A2 = 17,091.85 Birr/Year
J. Loader Depreciation Cost per hour (LDC)
LDC = (A1 – A2)/E
LDC = (295,189.99 – 17,091.85)/1250
LDC = 222.48 Birr/Hr
 B – Insurance Charges

Contractors shall insure their equipments for different

accidents that the equipment may face in its economic life as
such fire, theft and damages to the equipment as well as the
operator and damages to third parties life and properties.
In order to cover all these risks, it is better to obtain
Comprehensive insurance cover from insurance companies.
Different local insurance companies have different negotiable
annual comprehensive insurance charges based on the equipment
book value and its physical conditions.
Most local insurance companies charge between 0.75 to 1% of
the equipment book value for heavy duty equipments and
between 1 to 1.5% for light duty equipments such as small
vehicles.
EXAMPLE 1 - (DOZER D8R)

A. Delivered price……..…………………Birr 3,871,739.13

B. Annual insurance charges…………….1% of delivered price

C. Estimated annual utilization……………..………2000 Hrs

D. Dozer Insurance Cost per hour (DIC) = B/C

DIC= 0.01*3,871,739.13/2000

DIC = 19.36 Birr/Hrs

EXAMPLE 2 - (WHEEL LOADER 950G)

A. Delivered price……..……………………Birr 1,785,478.26

B. Annual insurance charges……………..1% of delivered price

C. Estimated annual utilization……………..…….1250 Hrs

D. Loader Insurance Cost per hour (LIC) = B/C

LIC = 0.01*1,785,478.26/1250

LIC = 14.28 Birr/

C-Property Tax

Different countries have different tax regulations whereby

equipment owners pay annual property tax for their equipments.

Currently there are no such tax regulations in Ethiopia but there

is a registration fee for heavy duty construction equipments
every two years.
EXAMPLE 1 - (DOZER D8R)

A. Registration fee per two years.………… Birr 2,000.00

B. Estimated annual utilization…………..…2000 Hrs

C. Dozer Property Tax per hour (DPT) = A/ (2*B)

DPT = 2000/ (2*2000)

DPT = 0.5 Birr/Hr

EXAMPLE 2 - (WHEEL LOADER 950G)

A. Registration fee per two years………………Birr 1,700.00

B. Estimated annual utilization……………..……1250 Hrs
C. Loader Property Tax per hour (LPT) = A/ (2*B)
LPT = 1700/ (2*1250)

LPT = 0.68 Birr/Hr

 D – Erection and Installation costs:
The initial erection and installation costs shall be considered in
calculating the equipment owning costs.

These costs are usually applied to equipments which are

transported in pieces from the supplier’s place and need to be
assembled at the contractor’s place such as crushers, batching
plants and so on.

For this particular case the cost of erection and installation will
be zero since both equipments does not need to be erected or
installed.

 Dozer Erection and Installation Costs per hour (DEIC)

…………..0.00 Birr/Hr
 Loader Erection and Installation Costs per hour (LEIC)
…………...0.00 Birr/Hr
F-Summarized Equipment Cost

Once the equipment depreciation cost, insurance charges,

property tax, erection and installation costs and cost of major
repairs and overhauls are identified, all these costs will be
summed to get the hourly owning cost of the equipment

EXAMPLE 1 - (DOZER D8R)

Hourly owning cost = DDC + DIC + DPT + DEIC + DMROC

Hourly owning costs = 268.35 + 19.36 + 0.50 + 0.00 + 0.00

Hourly owning costs =288.21 Birr/Hr

EXAMPLE 2 - (WHEEL LOADER 950G)

Hourly owning costs = LDC + LIC + LPT + LEIC + LMROC

Hourly owning costs = 222.48 + 14.28 + 0.68 + 0.00 + 0.00

Hourly owning costs = 237.44 Birr/Hr

 3.2 – EQUIPMENT OPERATING COSTS

Equipment operating costs are costs in which the owner of

the equipment expends throughout the economic life of the
equipment when it is working.

These costs include mainly the costs of fuel, lube oils,

filters, grease, normal repairs, tires, undercarriage and
special high wear items.
 A – Fuel cost:
Equipments fuel consumption can be estimated accurately
based on the contractor’s service records of equipments
depending on the type of work application.

However, in the absence of such records, equipment

manufacturer’s fuel consumption data under different work
application can be used in estimating the fuel cost of the
equipment.

The equipment work application determines the engine

load factor which in turn controls the equipment fuel
consumption rate. An engine continuously producing full
rated power is operating at a load factor of 1.0.
 However, earth moving equipments may operate at their
maximum engine rated output intermittently. (not
continuously)

Periods spent idle, dozer travel in reverse, haul units traveling

empty, operating downhill, operator’s experience are some of the
factors whereby equipment engine load factor can be reduced.

Based on the estimated fuel consumption data provided by

Caterpillar Performance Hand Book the fuel cost of the
equipments in example 1 and 2 are computed as follows
EXAMPLE 1 - (DOZER D8R)

A. Assumed Load factor ………………….Medium

B. Estimated fuel consumption………….33 Lit/Hr

C. Fuel cost …………………………….…4.31 Birr/Lit

D. Dozer Fuel Cost per hour (DFC) = B*C

DFC = 142.23 Birr/Hr

EXAMPLE 2 - (WHEEL LOADER 950G)

A. Assumed Load factor ………………….Medium

B. Estimated fuel consumption…………...19 Lit/Hr

C. Fuel cost …………………………………4.31 Birr/Lit

D. Loader Fuel Cost per hour (LFC) = B * C

LFC = 81.89 Birr/Hr

 B – Cost of lube oils, filters and grease:
The cost of lubricants (lube oils), filters and grease will mainly
depend on the maintenance practice of the equipment owner and
conditions of the work location.

Some equipment owners follow the equipment manufacturers’

guideline concerning time periods between lube oils, filters and
grease changes while others establish their own preventive
maintenance guidelines.

According to the manufacturer’s guideline provided in the

Caterpillar Performance Hand Book, the cost of lube oils, filters
and grease for equipments in example 1 and 2 are calculated as
follows:
 B-1 – Cost of lube oils

Lube oils include lubricants required for Crankcase/Engine,

Transmission, Final drives and Hydraulic control systems.
EXAMPLE 1- (DOZER D8R)
A. Estimated consumption of Engine oil…………0.129 Lit/Hr
B. Price of Engine oil…………………………….13.50 Birr/Lit
C. Estimated consumption of Transmission oil…..0.144 Lit/Hr
D. Price of Transmission oil……………………..16.54 Birr/Lit
E. Estimated consumption of Final drives oil………0.015 Lit/Hr
F. Price of Final drives oil….………………………14.81 Birr/Lit
G. Estimated consumption of Hydraulic oil……….0.038 Lit/Hr
H. Price of Hydraulic oil…………………………12.34 Birr/Lit
I. Dozer Lube Oils Cost per hour (DLOC) = A*B + C*D + E*F +
G*H
DLOC = 4.81 Birr/Hr
EXAMPLE 2 - (LOADER 950G)

A. Estimated consumption of Engine oil…...0.120 Lit/Hr

B. Price of Engine oil……………………………13.50 Birr/Lit
C. Estimated consumption of Transmission oil……0.034 Lit/Hr
D. Price of Transmission oil…...16.54 Birr/Lit
E. Estimated consumption of Final drives oil…...0.036 Lit/Hr
F. Price of Final drives oil….……………………14.81 Birr/Lit
G. Estimated consumption of Hydraulic oil………0.076 Lit/Hr
H. Price of Hydraulic oil…...12.34 Birr/Lit
I. Loader Lube Oils Cost per hour (LLOC) = A*B + C*D + E*F
+ G*H
LLOC = 3.65 Birr/Hr
B-2 – Cost of filters

Filter costs include the costs of Lube oil filters, Fuel filters and Air
filters. The cost of filters depends entirely on the number of filter
changes over a specified working time of the equipment.
EXAMPLE 1 - (DOZER D8R)
A. Scheduled Engine oil filter changes …every 250 Hrs
B. Price of Engine oil filter……………………317.10 Birr/Pc
C. Scheduled Transmission oil filter changes …every 500 Hrs
D. Price of Transmission oil filter……………449.92 Birr/Pc
E. Scheduled Hydraulic oil filter changes ……every 500 Hrs
F. Price of Hydraulic oil filter……………….802.33 Birr/Pc
G. Scheduled Primary fuel filter change ……every 2000 Hrs
H. Price of Primary fuel filter………………71.94 Birr/Pc
I. Scheduled Final fuel filter change ………every 500 Hrs
J. Price of Final fuel filter………………..285.14 Birr/Pc
K. Scheduled Primary air filter change ……every 2000 Hrs
L. Price of Primary air filter……………….1, 075.64 Birr/Pc
M. Scheduled Secondary air filter change …every 1000 Hrs
N. Price of Secondary air filter………1,021.37 Birr/Pc
O. Dozer Cost of Filter per hour (DCF) = B/A + D/C + F/E
+ H/G + J/I + L/K + N/M
DCF = 5.94 Birr/Hr
EXAMPLE 2 - (LOADER 950G)
A. Scheduled Engine oil filter changes ………every 250 Hrs
B. Price of Engine oil filter…………………149.01 Birr/Pc
C. Scheduled Transmission oil filter changes …every 500 Hrs
D. Price of Transmission oil filter…………449.92 Birr/Pc
E. Scheduled Hydraulic oil filter changes …….every 500 Hrs
F. Price of Hydraulic oil filter…………1,260.65 Birr/Pc
G. Scheduled Primary fuel filter change………every 2000 Hrs
H. Price of Primary fuel filter………………208.13 Birr/Pc
I. Scheduled Final fuel filter change …….every 500 Hrs
J. Price of Final fuel filter………………165.25 Birr/Pc
K. Scheduled Primary air filter change ……every 2000 Hrs
L. Price of Primary air filter……………….809.54 Birr/Pc
M. Scheduled Secondary air filter changes….every 1000 Hrs
N. Price of Secondary air filter………….658.32 Birr/Pc
O. Loader Cost of Filter per hour (LCF) = B/A + D/C + F/E +
H/G + J/I + L/K + N/M
LCF = 5.51 Birr/Hr
 B-3 – Cost of grease

The total consumption of grease depends on the size of the

equipment, working environment of the equipment and the frequency
of greasing by the equipment owner.

Even though it is very difficult to estimate the consumption of

grease in the absence of historical records, it can be assumed that on
average one fitting may take about 0.02Kg as per recommendations
from Ries Engineering which is the local dealer for Caterpillar
products.
EXAMPLE 1 - (DOZER D8R)

A. Estimated grease consumption…………..0.006 Kg/Hr

B. Price of grease……………………………..21.83 Birr/Kg

C. Dozer Grease Cost per hour (DGC) = A*B

DGC = 0.13 Birr/Hr

EXAMPLE 2 - (WHEEL LOADER 950G)

A. Estimated grease consumption……………0.004 Kg/Hr

B. Price of grease…………………………..21.83 Birr/Kg

C. Loader Grease Cost per hour (LGC) = A*B

LGC = 0.09 Birr/Hr
 C – Cost of tires:

Cost of tires is one of the major operating costs for wheel mounted
equipments. Tire costs include the cost of tire replacement and its
repair.

It is actually difficult to estimate tire economic life because of the

tire wear variability depending on the site surface conditions, speed,
wheel position, working load, maintenance conditions, road grades
and curves as well as operator’s skill.

As provided in the Caterpillar Performance Hand Book , the

economic life of tires is categorized into three zones based on the
working applications.
A. Zone A: Almost all tires actually wear through the tread from
abrasion.

B. Zone B: Tires wear out normally but others fail prematurely

due to rock cuts, impacts and non-repairable punctures.

C. Zone C: Few, if any, tires wear through the tread due to

non-repairable damages, usually from rock cuts, impacts and
continuous overloading.
EXAMPLE 1 - (DOZER D8R)

A. Dozer Tire Cost per hour (DTC) = 0.00 Birr/Hr (Crawler

Mounted)
DTC = 0.00 Birr/Hr
EXAMPLE 2 – (LOADER 950G)

A. Cost of tire …………………………14, 115.22 Birr/Pc

B. Number of tires required for one set…………..4

C. Estimated economic life………………………..2,200 Hrs

. Loader Tire Cost per hour (LTC) = (A*B)/C

LTC = 25.66 Birr/Hr

 D-Cost of Normal Repair
Normal repairs are all the repair cost during the life time of the
equipment excluding undercarriage as well as major repair and
overall.

Accurate estimated cost of normal repairs can be obtained from

previous records of the equipment owner.

However, in the absence of such accurate data, the equipment

manufacturers’ guideline can be used to estimate the hourly
equipment cost of normal repairs.

In the Caterpillar Performance Hand Book, the hourly normal

repair costs are calculated using the basic repair factor from charts
provided based on the work application of the equipment which
are rated as Zone A (moderate), Zone B (average) and Zone C
(Severe).
Moreover, extended-life multipliers will be used if the estimated
economic life of the equipment is greater than 10,000 Hrs and these
extended-life multipliers are given for equipments depending on
their economic life.

The cost of normal repair cost provided in the caterpillar Hand

book includes costs of parts and labors.
EXAMPLE 1 – (DOZER D8R)

A. Work application……..……………Zone B (Average)

B. Basic repair factor………………………7.5 USD/Hr
C. Estimated economic life…………………20, 000 Hrs
D. Extended life multiplier…………………………1.3
E. Hourly normal repair cost of parts = 0.7*B*D
F. Hourly normal repair cost of labor = 0.25*0.3*B*D
G. Dozer Normal Repair Cost per hour (DNRC) = E + F
DNRC = 7.55625 USD/Hr
Using the selling rate of the commercial bank of Ethiopia as of

December 15, 2010 i.e. 1 USD =27.75Birr

DNRC = 209.67 Birr/Hr

EXAMPLE 2 – (LOADER 950G)

A. Work application……..………………Zone B (Average)

B. Basic repair factor…………………………4.5 USD/Hr
C. Estimated economic life…………………10,000 Hrs
D. Extended life multiplier…………………………1.0
E. Hourly normal repair cost of parts = 0.6*B*D
F. Hourly normal repair cost of labor = 0.25*0.4*B*D
G. Loader Normal Repair Cost per hour (LNRC) = E + F

LNRC = 3.15 USD/Hr

LNRC = 87.41Birr
 E – Cost of high wear items:
High wear items are these items having very short economic life as
compared to the basic equipment. These items are usually called
ground engaging tools which are different in size and economic life
depending on the type of equipment and work application. Some of
these items include cutting edges, ripper tips, bucket teeth, body
liners, cables, router bits and so on.
The consumption of high wear items vary widely depending on
work applications, materials to be handled, type of material
where the ground engaging tools are made and operating
techniques.

For this particular case lets ignore this part since the type of work to
be done with both equipments are not clearly specified
 F – Summarized operating costs of equipment:

As discussed earlier, the equipment operating cost includes the cost
of fuel, lubricants, filters, grease, tires, undercarriage, normal repairs
and high wear items and all these costs will be summed to get the
operating cost of the equipment.

Accordingly, the operating cost of equipments given in example 1

and 2 are calculated as follows:
EXAMPLE 1 – (DOZER D8R)
Hourly
operating costs = DFC + DLOC + DCF + DGC + DTC + DUC
+ DNRC
Hourly operating costs = 142.23 + 4.81 + 5.94 + 0.13 + 0.00 +
52.48 + 209.67 Hourly
operating costs = 415.26 Birr/Hr

EXAMPLE 2 – (LOADER 950G)

Hourly operating costs = LFC + LLOC + LCF + LGC + LTC +

LUC + LNRC
Hourly operating costs = 81.89 + 3.65 + 5.51 + 0.09 + 25.66 +
0.00 + 87.41+ 5.31 Hourly
operating costs = 204.21 Birr/Hr
 3.3 – OPERATOR’S SALARY AND BENEFITS

 Based on the principles of direct labor hourly cost estimation, the

annual operator’s salary and benefits shall be summed up and divided
by the annual utilization of the equipment to get the hourly cost of
operators.

In determining the annual operator’s salary and benefits, the

following costs, but not limited to, shall be assessed properly. Once,
the annual salary and benefits are calculated for the equipment
operators, the hourly cost of operators for the equipments in example
1 and 2 are computed as follows:
EXAMPLE 1 – (DOZER D8R)

A. Total annual salary and benefits………62,310.44 Birr

B. Annual equipment utilization……………2000 Hrs
C. Hourly operator’s cost = A/B
Hourly operator’s cost = 31.16 Birr/Hr

EXAMPLE 2 – (LOADER 950G)

A. Total annual cost of operator’s wage and

benefits…………. 47,092.83 Birr
B. Annual equipment utilization………………1,250 Hrs
C. Hourly operator’s costs = A/B
Hourly operator’s costs = 37.67 Birr/Hr
The equipment hourly cost for owned equipments is then the sum
of the equipment owning costs, equipment operating costs and the
operator’s salary and benefits.

Therefore, a contractor has to use the following hourly equipment

costs for the earthmoving equipment in example 1 and 2 as the
equipment hourly cost in his cost estimations.
EXAMPLE 1 – (DOZER D8R)

A. Hourly owning costs…………………….… 288.21 Birr

B. Hourly operating costs………………………415.35Birr
C. Hourly operator’s costs……………………….31.16 Birr
D. Hourly Bulldozer costs = A + B + C
Hourly Bulldozer costs =734.72Birr

EXAMPLE 2 – (LOADER 950G)

A. Hourly owning costs…………………….… 237.44 Birr

B. Hourly operating costs………………………209.52Birr
C. Hourly operator’s cost………………………..37.67 Birr
D. Hourly Loader cost = A + B + C
Hourly Loader cost = 484.63Birr
 3.4 – OVERHEAD COSTS

In addition to the Equipment owning and operating costs as well as

cost of operators, the equipment owner’s overhead costs shall be
included in determining the overall equipment hourly costs.
Overhead costs widely vary between equipment owners
depending on organizational structure, number of staffs employed
at head office and project sites, salary and benefit scales, office
facilities and so on.

Overhead costs are major costs to the equipment owners and

obviously need proper survey of these costs. Overhead costs may
include, but not limited to, the following items:
Labor cost of marketing, finance, supply, technical and
administration teams working both at the head office and project
sites
Garages, workshops and warehouses
Head office building depreciation or renting costs
Cost of equipment mobilization and demobilization
Head office and project office running costs such as desks,
chairs, computers, telephone, fax, internet, stationery and so on
Cost of small vehicles and so on
Even though, the principles of estimating overhead costs has a
detail approach to estimate it, in this particular case let’s assume
the equipment owner has an overhead cost amounting 15%(ERA
suggestion) of the sum of Equipment owning costs, operating
costs and operator’s costs.
EXAMPLE 1 – (DOZER D8R)

A. Hourly owning costs = 288.21 Birr

B. Hourly operating costs = 415.35 Birr
C. Hourly operator’s costs = 31.16 Birr
D. Hourly overhead costs = 0.15*(A+B+C)

Hourly overhead costs = 110.21Birr

EXAMPLE 2 – (LOADER 950G)

A. Hourly owning costs = 237.44 Birr

B. Hourly operating costs = 209.52 Birr
C. Hourly operator’s cost = 37.67 Birr
D. Hourly overhead costs = 0.15*(A+B+C)

Hourly overhead costs =72.69Birr

 3.5– EQUIPMENT BREAKEVEN COST
Equipment breakeven cost is the sum of equipment owning
costs, operating costs, operator’s costs and overhead costs.
Accordingly, the hourly breakeven costs for the equipments in
example 1 and 2 are computed as follows.

EXAMPLE 1 – (DOZER D8R)

A. Hourly owning costs = 288.21 Birr

B. Hourly operating costs = 415.35 Birr
C. Hourly operator’s costs = 31.16 Birr
D. Hourly overhead costs = 110.21 Birr
E. Hourly breakeven costs = A + B + C + D

Hourly breakeven costs = 844.93 Birr

EXAMPLE 2 – (LOADER 950G)

A. Hourly owning costs = 237.44 Birr

B. Hourly operating costs =209.52Birr
C. Hourly operator’s cost = 37.67 Birr
D. Hourly overhead costs = 72.69 Birr
E. Hourly breakeven costs = A + B + C + D

Hourly breakeven costs = 557.32Birr

 3.6. Profit
ERA manual suggests 10% of breakeven costs.

EXAMPLE 1 – (DOZER D8R)

A. Hourly breakeven cost= 844.93 Birr

Hourly profit = 0.1*844.93 Birr

= 84.49 Birr

EXAMPLE 2 – (LOADER 950G)

A. Hourly breakeven cost=557.32Birr

Hourly profit = 0.1* 557.32 Birr

=55.73Birr
 3.7. Total rental cost
Breakeven cost/ hr+ Profit/hr

EXAMPLE 1 – (DOZER D8R)

A. Hourly breakeven cost= 844.93 Birr

B. Hourly profit = 84.49 Birr

Hourly rental cost =A+B= 929.42 Birr/hr

EXAMPLE 2 – (LOADER 950G)

C. Hourly breakeven cost= 557.32 Birr

D. Hourly profit =55.73Birr

Hourly rental cost =A+B= 613.05 Birr/hr

Thank
you!!