equipment costing: what you don’t track can hurt you (the devil is in the details)
TRANSCRIPT
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Equipment Costing:What You Don’t
Track Can Hurt You
(The Devil is in the Details)
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Goal: Enjoy Life - make money
Focus on Tract Profitability Revenue is the easy part (usually) Contractor Pay is straightforward Employee Pay is somewhat complicated
– Determine the employee ‘load’ Cost of your own equipment is hard to
calculate.– How much per ton does it cost to run a logging
machine?
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Equipment Costs
Full Cost Accounting Operating Expenses – Fluids, Service Operator Expenses – Labor, Overhead Capital Expenses – Depreciation Return on Investment
– Think of yourself as the bank
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Basic Approach (Step 1)
Sum up all machine costs for the year Divide by Production Hours (Implicitly
Accounts for Down Time)
Annual Costs $220,000
Production Hours 2,000
Hourly Cost $110.00
Example:
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Basic Approach (Step 2)
Multiply Hours on Tract by Hourly Rate (step 1) Divide by Tract Production Result: Cost per Ton
Tract Hours 200 Hrs
Cost/Hour $110/Hr
Tract Mach. Cost $22,000
Cost per Ton $5.00
Example:
(Tract Tons:
4,400)
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Operator Expenses
Direct Payroll Pay for both Production Time and non-
Production (down) Time Payroll Load
– Payroll Taxes, Benefits (Company Share)
Share of allocated overhead ??
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Capital Expenses
Capital Cost of the Machine Divided by Lifetime Hours (Depreciation)– E.g. $500,000 Machine / 10,000 Hrs = $50/hr
Capital Costs Should Include Capital Repairs – E.g., Replacing an Engine
Insurance Costs Profit (Return on Investment)
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Return on Investment
Think of Yourself as the Bank– You supply the cash
Analogy: The labor you supply deserves a market price; so does your capital
Economic “profit” is that earned over and above a normal return on investment
Accounting profit is a regulatory concept
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Operating Expenses
Repairs and Maintenance– E.g., Filters, Tires, Hoses– Capital Repairs included in Capital Costs
Service Performed by Employees Mechanics (Employee) must be assigned their
full cost (mimic cost of outside mechanic) Fuel – Big Problem
– If the price of fuel goes up $0.50 per gallon, how much does my cost per ton change?
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33¢ / Gallon
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Diesel$4.00/Gallon
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Fuel Example
Fuel Price Change $0.50
Consumption per Hour 5 gallons
Production (Tons/Hour) 25
Additional Cost $.10/Ton
Calculation = 0.50 x 5 / 25
Must be Performed for Each Machine
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Fuel Example – Tract
Activity Hours Hrly Rate 1 Hrly Rate 2
Falling 210 $135.00 $137.75
Delimbing 200 $130.00 $132.50
Skidding 130 $125.00 $127.00
Loading 55 $120.00 $122.25
Total Cost $77,200 $78,661
Tons 5,000 5,000
Cost / Ton $15.44 $15.73 $0.29
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Implementing the Concept
(Logger Participation)
Equipment Cost Template
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Track & Document - Expenses
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Track & Document – Hours by Job
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Monitor – Job Costs
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Fuel Increase of $0.50
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Summary
Track all your machine expenses Work with a system (worksheet, software)
that allows you to estimate your hourly machine costs
Track labor & machine hours by activity on each tract/job
It’s Your Money . . . Do You Know Where it Is?Information is POWER.