Cost of Ownership Calculator - Excel version 5

Introduction

Lifetime Cost of Construction Equipment Ownership Template

Construction Equipment purchases are an investment that needs to be evaluated to determine which purchase is the better value for your business. Equipment performance and capacity to do the job are part of the decision process. However, the single purchase price cost is only one factor in the real lifetime" equipment cost. Any purchase should be evaluated and take into account the loan factors, cost for maintenance and repairs, fuel consumption, insurance, and depreciation value to determine your the real lifetime cost of the equipment being purchased.

As a guide to help you estimate real lifetime equipment costs before your next equipment purchase, the included "Cost of Ownership Template" spreadsheet (next sheet) can give you an example on how you can estimate your construction equipments true cost of ownership. This template breaks all costs into both fixed and variable cost per hour amounts. Fixed cost are your interest and depreciation expense whereas variable cost are fuel, tires and maintenance costs.

To use the Cost of Ownership template, you will need to enter your equipment model cost parameters to calculate the true equipment cost of ownership.

The template should be modified with your own values. You can change all the factors in yellow for your own calculations. White cells are optional. A detailed explanation of the factors used to calculate the cost are given in the sheet "Parameters". Be sure to save the sheet under a different name to keep your information. Values shown are for example purposes only.

The "Cost of Ownership Template" spreadsheet example breaks the cost down into both variable and fixed cost per hour over your ownership period. With these cost per hour, you can do a best estimate to find the real lifetime cost of ownership of your construction equipment.

As an example, the Volvo L50E wheel loader has a suggested retail price of $109,712 (see your dealer for exact pricing). Enter this amount as parameter A on the sheet. Tires and rims retail for $4,418. Enter this amount as parameter N. With the other cost assumptions made and entered in the parameter cells: 5 year ownership (C), 6% loan interest (F), 2000 hrs in use per year (R), and $9,484 in annual service (P) are entered in the table, the "Real cost of owning and operating" this equipment is $17.00 per hour before operator cost, and $37.00 per hour with the operator cost included. Therefore, $37.00 per hour is the estimated true cost of ownership based upon the assumptions entered. See the paramers sheet for the explanations of these values.You can used this template for other equipment in a similar manner to determine the real lifetime cost of ownership to you as an equipment owner. This template represents one way to determine an estimated "real cost analysis" that is frequently used in the industry.

Cost of Ownership Template

Owning and Operating Cost Template version 1.1, January-2006Conditions: See descriptions below to enter your valuesParametersITEMUnits11Machine ModelModel Volvo L50E
Larry Fultz: Enter Model Name in this cellERROR:#REF!ERROR:#REF!APurchase priceUSD$109,712BPurchase price, excluding tires / Tracks$105,294
Larry Fultz: This cell is calculated by subtracting the tires/tracks - short life itemsNote:CDepreciation timeyears5
Larry Fultz: Time Frame of test (in years)You are allowed to change values in cellsDResidual value$43,885
Larry Fultz: Residual Value, this is the estimated resale valuewhich have yellow background. White cellsEDepreciation cost ((B-D)/C)per year$12,282
Larry Fultz: calculated depreciation expenseare optional.FInterest%6%
Larry Fultz: Interest Rate on loanThe light blue cells have formula coded in them.GInterest cost (F x (A+D)/2)per year$4,608
Larry Fultz: Calculated Interest Expense (averaged)Therefore, making any changes will overwriteHMachine taxper year0.0
Larry Fultz: You annual tax, varies by regionthe formulas. Remember to save underIInsuranceper year0.0
Larry Fultz: Insurance costdifferent file name.JFuel Costper gal$2.25
Larry Fultz: Cost per gallon of fuel

KFuel Cunsumptiongph1.30
Larry Fultz: Fuel Consumption gallons per hour on Machine

LOil Costper qt.0.0
Larry Fultz: Cost of Oil per quart

MOil Consumptionqt. per hr.0.00
Larry Fultz: Oil consumptionThe repair and maintenance cost should includeNCost of a Set of Tires / Tracks$4,418
Larry Fultz: Cost for Tires/TracksPM and repairs. If you were to use this template OLifetime of Tires / Trackshours5000
Larry Fultz: Tire/Tracks life timefor used equipment, remember to work the repairPRepairs and Maintenanceper year$9,484
Larry Fultz: estimated cost of repairs and maintenanceand maintenance cost with your service manager.QOperator Costper year$40,000
Larry Fultz: Cost for an operator

ROperating Hoursper year2000
Larry Fultz: Number of operating hours for test (/year)(cannot be zero)Note: Oil cost can be included as part of repair and maintenance.

Machine ModelModel Volvo L50E1. Fixed Cost per HourDepreciation (E/R)$6.14Interest (G/R)$2.30Machine Tax (H/R)0.0Insurance (I/R)0.0TOTAL FIXED COST PER HR.$8.44

2. Variable Cost per HourFuel (J x K)$2.93Oil, Grease, & Filters (l x m)0.0Tires / Tracks (n/o)$0.88Repair & Maintenance (P/R)$4.74TOTAL VARIABLE COST PER HR.$8.55

3. Fixed + Variable Cost per Hour - Sub Total $17.00

4. Operator Cost per Hour (Q/R)$20.00

TOTAL COST PER HOUR$37.00

Disclaimer:Volvo Construction Equipment North America, Inc. and its subsidiaries and affiliates (collectively "Volvo CE") hereby disclaims any and all expressed or implied warranties regarding the cost data, the calculations contained therein, or the appropriateness of equipment used in the analysis, including, without limitation, any warranties of merchantability or fitness for a particular purpose. In no event shall Volvo CE be liable to the entity for whom the report was created (or any other entity) for any indirect, incidental, consequential, or special damages, including without limitation, lost revenues or profits.

Parameters

Lifetime Cost of Ownership Template Parameters - Explained

Letters below refer to the parameters given on the Cost of Ownership TemplateA - Purchase price you pay for the equipment.B - Calculated value from purchase price minus the cost of the tracks/tires. Why do we take out the cost of the tires? Tires and tracks have a different wear cycle and usually need to be replaced a number of times during the life of your equipment, therefore it is common practice to include these as a separate cost item. C - Depreciation time frame, basically the time frame for the cost template to the determine the cost of ownership, usually how long you will own the equipment. D - Residual value - the estimated value of the machine at the end of your ownership period. Note: residual value can vary depending upon condition of the machine (hours used, etc.) after the ownership period.E - Calculated depreciation cost (calculated purchase price minus the residual value) divided by the time frame. This computes your depreciation cost per year. Essentially depreciation is the loss in the value of the equipment over time. F - Annual interest rate on the loan to purchase the equipment.G - This is the interest cost of the loan. Interest cost is calculated from the averaged amount financed times loan interest rate, (Purchase Cost + Residual) / 2 * APR. Yes, you add Net Cap Cost and Residual, this is not double-counting as it appears. It's a simple way of calculating the average amount financed without using complicated cost of money business formulas. This calculation comes close to the declining balances formula and is widely used in the loan industry.H - Your annual taxes paid on the machine - this varies by region. I - Your annual insurance cost for the machine.J - Estimate cost of fuel per gallon. K - Fuel consumption (gallons per hour). Fuel consumption figures are usually available in the Product Manuals or the Manufactures Product Handbook. Fuel consumption can vary depending on how the machine is used. Note: this can be an important consideration. A machine which is 2 gallons per hour more efficent can, over the life of the machine, save thousands of dollars in fuel cost. Volvo Construction Equipment have the highest fuel efficency ratings in the industry. Fuel consumption factors for Volvo products are available in the Volvo Product Manuals or from your local dealer. L - Estimated cost of a quart of oil, grease and or filters.M - Oil consumption (quarts per hour) of the machine.N - Cost of a set of tracks or tires. These are high wear items and need to be included separately for calculating ownership cost.O - The expected lifetime (in number of hours) of a set of tracks or tires.P - Estimated repair and maintenance cost. This can be a significant factor in your equipment cost. Repair and maintenance costs vary considerability depending on the type of work. Equipment with the lowest repair and maintenance are cost effective over the life of a machine. Periodic Maintenance Plans are important to keep this cost down. Your Service Manager is the best source for this type of information. Estimated repair and maintenance costs are sometimes available from either the manufactures performance handbook, or from the product manuals. Estimated service costs for Volvo construction equipment are available from your local dealer. Volvo Construction Equipment are engineered for minimal service requirements offering higher productivity.Q - Operator cost per year - Operator wages.R - Operating hours for the machine per year - how many hours you will use the equipment per year.

The Botton Line - A Cost per Hour Ownership CostYour equipment costs can be broken down into the following categories: (1) fixed costs such as loan, depreciation, insurance taxes, etc. and (2) variable costs per hour such as fuel, repair, tires/tracks, etc. The subtotal for these are given in 3. You can use these costs per hour to determine the real lifetime cost estimate of operating and owning your equipment.

1. The fixed hourly calculated costs include the depreciation expense, interest cost, tax and insurance.2. The variable calculated costs incude the fuel, oil & grease, filter costs.3. Fixed and variable subtotal shows basic purchase and operation costs per hour for the machine.4. The total hourly cost of owning and operating this equipment includes operator wages. This is your computed hourly cost per hour for this equipment.

Volvo Construction Equipment have high fuel efficiencies, are designed for reduced maintenance requirements and have higher productivity.