Equipment Rate Study Guide
Core Concepts
Everything you need to understand before calculating a rate.
What it covers
Recovering the cost of buying the machine — depreciation, cost of capital (CFC), insurance, and any holding costs like storage or taxes.
What it covers
Costs of running the machine — fuel, tires, major & minor repairs, preventative maintenance, and ground engaging components (teeth, edges, etc.).
Value lost over time
Decline in machine value due to age, condition, and obsolescence. Usually the largest single component of ownership cost. Spread over economic life in hours.
How long it’s useful
Period the machine operates at acceptable productivity. Expressed in hours. Shorter in harsh conditions (rock quarries), longer in gentle ones (topsoil loading).
Cost of Facilities Capital
The cost of capital tied up in the machine. Charged regardless of whether the machine was purchased outright or financed. Reflects opportunity cost of money.
Big-ticket rebuilds
Planned replacement/rebuilding of major components — engines, transmissions, undercarriage. Costs are accrued over the machine’s life as a “repair reserve.”
Field fixes
Replacement of small parts done in the field — belts, hydraulic hoses, O-rings, windshields, lights, bucket weld repairs, etc.
Routine servicing
Daily oil changes, filters, greasing. Typically performed by a service oiler. Parts and labor costs are included in the operating rate.
Wear parts
Ripper teeth, cutting edges, bucket teeth, corner bits. Costed per hour based on expected life — except drill bits/rods, which are usually separate consumables.
What’s Included vs. Excluded
| Item | Category | In Rate? | If Not, Where? |
|---|---|---|---|
| Depreciation | Ownership | ✓ YES | — |
| Cost of Capital (CFC) | Ownership | ✓ YES | — |
| Insurance & License | Ownership | ✓ YES | — |
| Equipment Overhead | Ownership | ✓ YES | — |
| Major Repairs (parts + labor) | Operating | ✓ YES | — |
| Minor Repairs (parts + labor) | Operating | ✓ YES | — |
| Tires | Operating | ✓ YES | — |
| Fuel & Lubricants | Operating | ✓ YES | — |
| Preventative Maintenance | Operating | ✓ YES | — |
| Ground Engaging Components | Operating | ✓ YES | — |
| Machine Operator Wages | — | ✗ NO | LABOR (direct cost) |
| Transport to/from Jobsite | — | ✗ NO | Mobilization / Demobilization |
| Remote Mechanic Subsistence | — | ✗ NO | Unusual Conditions — separate |
| Mechanic Travel Time (remote) | — | ✗ NO | Unusual Conditions — separate |
Formulas Reference
Every formula you need, explained step by step.
Total Hourly Rate
This is the “all-in” machine cost before adding the operator’s labor rate.
Depreciation / Hour
Salvage Value = Purchase Price × Salvage % (e.g. 15% → × 0.15)
Tire Cost subtracted only for rubber-tired machines
Economic Life Hours = Life (yrs) × Annual Hours (e.g. 8 yr × 1200 hr = 9,600 hr)
Cost of Facilities Capital (CFC)
CFC / hr = Annual CFC Factor × Machine Purchase Price Annual Usage Hours
N = Economic life in years
S = Salvage value as decimal (15% = 0.15)
Cost of Money Rate = Interest / opportunity cost as decimal (5% = 0.05)
Insurance / Hour
Often expressed as a % of machine value per year, then divided by annual hours.
Fuel / Hour
Tires / Hour
Tire life in hours = replacement interval years × annual usage hours
Repairs / Hour
Repair Parts/hr = Annual Parts Cost ($) Annual Machine Usage Hours
Preventative Maintenance / Hour
Worked Example
2016 ½-Ton 4×4 Supercab Pickup — full rate derivation from the lecture.
Assumptions
Ownership Cost Calculation
Operating Cost Calculation
Rate Calculator
Enter your machine’s data to calculate an hourly ownership + operating rate on the fly.
Ownership Inputs
Operating Inputs
Results
Flashcards
Click any card to reveal the answer. Use these to self-quiz before exams or job-site estimates.
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