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Lecture 9b - Construction Cost Estimates

Here are the key steps to solve this problem: 1. Calculate depreciation using straight line method over 8,400 hours 2. Calculate cost of tires over life using sinking fund formula 3. Calculate major repair cost using uniform series payment formula 4. Calculate operating costs per hour 5. Calculate salvage value 6. Use uniform series payment formula to calculate ownership cost per hour 7. Add ownership and operating costs to determine total cost per hour

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Joseph Berlin Juanzon
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209 views38 pages

Lecture 9b - Construction Cost Estimates

Here are the key steps to solve this problem: 1. Calculate depreciation using straight line method over 8,400 hours 2. Calculate cost of tires over life using sinking fund formula 3. Calculate major repair cost using uniform series payment formula 4. Calculate operating costs per hour 5. Calculate salvage value 6. Use uniform series payment formula to calculate ownership cost per hour 7. Add ownership and operating costs to determine total cost per hour

Uploaded by

Joseph Berlin Juanzon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CIV 511

Construction Methods and Project Management

Lecture 9b
Construction Cost Estimates

Dr. J. Berlin P. Juanzon CE, MBA, MSCM


COMPONENTS OF CONSTRUCTION
COST ESTIMATES
• EQUIPMENT COST
– These are the costs of owning and operating
construction equipment directly used in the
construction project.
– Equipment cost vary based on project
conditions and cycle time for equipment.
EARTH MOVING EQUIPMENT
EARTH MOVING EQUIPMENT
EARTH MOVING EQUIPMENT
ROAD MAKING EQUIPMENT
ROAD MAKING EQUIPMENT
ROAD MAKING EQUIPMENT
PILE DRIVING EQUIPMENT
PILE DRIVING EQUIPMENT
CONCRETE EQUIPMENT
CONCRETE EQUIPMENT
LIFTING AND HANDLING
EQUIPMENT
LIFTING AND HANDLING
EQUIPMENT
COST OF OWNING AND
OPERATING EQUIPMENT
• Ownership cost is the cumulative result of
those cash flows an owner experiences
whether or not the machine is productively
employed on a job.
Ownership Cost
• 1. Purchase expense
• 2. Salvage value
• 3. Tax savings from depreciation
• 4. Major repairs and overhauls
• 5. Insurance
• 6. Storage and miscellaneous
Purchase Expense
• The cash outflow the firm experiences in
acquiring of a machine is purchase expense.
• It is the total delivered cost, including
amounts for all options, shipping, and taxes.
• The machine will show as an asset in the
firm’s accounting records.
Salvage Value
• Is the cash inflow a firm receives if a
machine still has value at the time of
disposal.
• This revenue will occur at a future date
Tax Savings from Depreciation
• Depreciating a machine’s loss in value with
age will lessen the net cost of machine
ownership.
• The cost savings, the prevention of a cash
outflow, afforded by tax depreciation is a
result of shielding the company from taxes
Tax Savings from Depreciation
• Depreciating a machine’s loss in value with
age will lessen the net cost of machine
ownership.
• The cost savings, the prevention of a cash
outflow, afforded by tax depreciation is a
result of shielding the company from taxes
Major repairs and overhauls
• Considered as an investment in an old
machine resulting in a an extension of a
machine’s service life.
Taxes
• Refers to those equipment ownership taxes
that are charged by any government
agencies.
• They are commonly assessed at a
percentage rate applied against the book
value of the machine.
Insurance
• Insurance includes the cost to cover fire,
theft, and damage to the equipment.
• Annual rate can be range from 1 to 3%.
• This cost can be actual premium payments
to insurance companies.
Depreciation
• Straight-Line depreciation

– Depreciation rate, Rn = 1/N


• N= no. of years
• Dn = Unadjusted basis x Rn
• Dn = Unadjustaed basis / N
– Book Value year m BVm = Unadjusted basis –
(n X Dn)
Storage and Miscellaneous
• Between jobs or during bad weather, a
company will require storage facilities for
its equipment.
• The cost of maintaining storage yards and
facilities should be prorated to those
machines that required such harborage.
ELEMENTS OF OPERATING
COST
• Fuel
• Lubricants, filters and grease
• Repairs
• Tires
• Replacement of high-wear items
COST OF OPERATING
• Fuel
– Fuel expense is best determined by
measurement on the job.
– Accurate service records tell the owner how
many liters of fuel a machine consumes over a
period of time and under what job conditions
COST OF OPERATING
• Lubricants
– The cost of lube oils, filters, and grease will
depend on the maintenance practices of the
company and the conditions of the work
location.
COST OF OPERATING
• Repairs
– Normal maintenance-type repairs.
– These are the repair expenses incurred on the
job site where the machine is operated and
would include the costs of parts and labor.
COST OF OPERATING
• Tires
– Tires for wheel type equipment are a major
operating cost because they have a short life I
relation to the machine itself.
COST OF OPERATING
• Replacement of High-Wear Items
– These includes clutch linings, brake pads and
cables.
Cost of Money / Capital
• Uniform series payment:

• A= Uniform end-of-period payments/ receipts.


• P = Purchase price
• n = no of years
• i = cost of money / interest
Cost of Money / Capital
• Uniform series sinking fund factor:

• A= Uniform end-of-period paymenrs / receipts.


• F = Sinking fund
• n = no of years
• i = cost of money / interest
Problem – Cost of Owning
• A company having a cost capital rate of 8%
purchases a Ph3,000,000 loader. This
machine has an expected service life of
4year and will be utilized 2,500 hr per year.
The tires on this machine cost Ph145,000.
the estimated salvage value at the end of 4
year is Ph450,000. Calculate the
depreciation portion of the ownership cost
for this machine. What is the cost of owning
the machine?
Ownership Cost-Time Value Method

• i = 8%
• P = Ph3,000,000.00
• Useful Life = 4years
• Cost of tires = 145,000.00
• Salvage Value = Ph450,000.00
• Hours used per Year = 2,500hours/year
Ownership Cost-Time Value Method

• Cost to Owner:
– Cost of delivered to owner = Ph 3,000,000.00
– Less: Cost of Tires = 145,000.00
– Total cost of equipment = 2,855,000.00

• Tires are considered a wear item and are treated as an


operating cost.

• Uniform series payment:

– A = Ph 905,409.15 (Present amount of Money)


Ownership Cost-Time Value Method

• Uniform series sinking fund factor:


– F = 450,000.00 (salvage value)
– Therefore:
– A = Ph 99,864.36 (Future amount of money)

– Cost of owning and operating per hour:


• Ph(905,409.15 – 99,864.36)per year /
2,500hours/yr
• = Ph 322.22/hour
GROUP SEATWORK 1.0
• A Dozer cost Ph 2,115,000 to purchase. Fuel, oil grease,
and minor maintenance are estimated to cost Ph580 per
operating hour. A set of tires cost Ph150,000 to replace,
and their estimated life is 2,800 use hours. A Ph282,000
major repair will probably be required after 4,200hr of
use. The equipment is expected to last for 8,400 hr, after
which it will be sold at a price equal to 15% of the original
purchase price. A final set of new tires will not be
purchased before the sale. How much should the owner of
the Dozer charge per hour of use, if it is expected that the
machine will operate 1,400 hr per year? The company’s
capital rate is 8%.

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