Calculate the ownership cost per hour of a 1044 kW excavator

Calculate the ownership cost per hour of a 1044 kW excavator with a capital cost of $6,000,000 and an economic life of 10,000 hours over seven years under average operating conditions. The residual value of the machine at disposal is 25 percent of the capital cost and interest and insurance is 12 percent per annum. Show also the interest and depreciation costs per hour.

Solution

1044 kW excavator

Annual Depreciation Amount = Original cost - Salvage Value / Number of life for the asset

=$6,000,000 - $1,500,000 /7

=$642,857

Cost per hour Depreciation: $6,000,000 - $1,500,000 / 10,000 hours

=$450

Salvage Value calculation:

$6,000,000 * 25/100=$1,500,000

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Interest and Insurance

Average Annual Investment = Total Initial cost + salvage value /7

=$6,000,000 + $1,500,000 /7

=$1,071,429

Annual Interest Cost:

Average Annual Investment * 12 percent per annum

=$1,071,429 * 12/100

=$128,571

Interest Cost per hour

=$6,000,000 + $1,500,000 *12/100 / 10,000 hours

=$900,000/10,000 hours

=$90

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Ownership cost per hour of a 1044 kW excavator is

Depreciation = $450

Add

Interest Costs = $90

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Total =$540

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