se Method 1 (combined depreciation and investment costs for ownership coste to d

Question

se Method 1 (combined depreciation and investment costs for ownership coste to determine the p for the truck 8 U of equipment with a 250-hp diesel engine. The following conditions apply Factory delivered price $450,000 Sales tax-5% of delivered price Unloading and assembling = $2,500 -~-C e- Salvage value = $120,000 Useful life = 5 yr Hours used per year = 1.500 hr Interest on investment 8% Maintenance and repairs 70% of straight-line depreciation Diesel engine 250 hp Operating factor = 0.60 Fuel costs = $4.00/gal Crankcase capacity 8 gal Hours between oil changes 120 hr Oil costs = $16/gal robable cost per hour of owning and operating a rubber tire uni :55,030 ao hr epre

Explanation / Answer

Solution:

Fuel consumed per hour = 250 hp*operating factor = 250hp*0.6 = 150 gallons/hour.

Net purchase price = factory delivered price(1+sales tax rate) + price of assembling = 450,000(1+5%) + 2500 = 475,000

Annual depreciation = (net price - salvage value)/5 = (475000-120,000)/5 = $71,000

Average cost formula = net price(n+1)/2n = 475,000(5+1)/2*5 = 285,000

Thus annual costs are:

1. Depreciation of $71,000

2. Maintenance and repair = 20% of 475,000 = 95,000

3. Investment = 8% of average cost = 8% of 285,000 = 22800

Thus total annual fixed costs = 71000+95000+22800 = $188,800

Hourly costs: Fixed cost/1500 hours = 188,800/1500 = $125.87 per hour

Tire depreciation = cost of tires/tire life = 55000/3500 = $15.71429 per hour

Tire repair = 10% of depreciation = 10% of 15.71429 = 1.571

Fuel cost = $4*150 = 600

Thus total cost per hour = 125.87+15.71429+1.571+600

= $743.15

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