A contractor has purchased a grader for $150,000 and expects to use it about 1,0
ID: 2422334 • Letter: A
Question
A contractor has purchased a grader for $150,000 and expects to use it about 1,000 hours per year. The contractor plans to use the grader for 12 years and then realize a salvage value of about $27,000. Tires for the grader cost $7,200 for a set of six tires. The useful life of a set of tires is estimated at 3,500 hours. The grader is powered by a 135-horsepower diesel engine, and diesel fuel costs $1.05 per gallon.
a) What is the hourly ownership cost for the grader (less tires) at a minimum attractive rate of return of 9%?
b) The equipment repair factor for the grader is estimated to be about 50% of the hourly straight-line depreciation for the 12 years of ownership. What do you estimate the hourly maintenance and repair cost for the grader (less tires) to be?
c) What do you estimate the hourly tire cost to be for the grader?
d) What do you estimate the hourly fuel cost to be for the grader under unfavorable working conditions?
e) What do you estimate the hourly filter, oil, and grease cost to be for the grader under unfavorable working conditions?
f) What hourly equipment rate should the contractor charge a project for use of the grader if a profit of 2% is desired from the equipment fleet and operator costs for the grader are $28.00 per hour?
2. A contractor has a project to constuct a new motel with an underground parking garage. The contractor has evaluated the size of the excavation required for the parking garage and decided to remove the soil using a three-cubic-yard excavator and four dump trucks. The contractor determined the following cost data for the equipment from historical records:
Equipment Ownership Cost Operating Cost (Less Labor Cost) Labor Cost (Operator)
Excavator $32.00 $90.00 $29.00
Dump Truck $12.00 $48.00 $25.00
After analysis of the working conditions and the haul distance for the trucks, the contractor determined that the productivity of the combined equipment fleet will be about 120 cubic yards per hour. What is the estimated unit cost per cubic yard to excavate for the parking garage and haul the soil away?
3. A contractor has been awarded the contract for the construction of a small shopping center. The contractor has decided to use crawler tractors with dozer blades to remove the vegetation and topsoil from the project site, but is unsure which size tractor to use. The productivity of a medium-sized tractor is estimated to be 100 square yards per day, and the productivity for a heavy tractor is estimated to be 190 square yards per day. The average hourly ownership and operating cost (including labor cost) for the medium tractor is $85, and for the heavy tractor is $126.
a) Which tractor should the contractor select to minimize the direct equipment cost for clearing and grubbing the project site?
b) Using the tractor selected above, what is the estimated equipment cost for clearing and grubbing the 200-foot-by-270-foot site?
Explanation / Answer
a.
Ownership cost = Purchase cost
= $150,000
Total number of hours = Hours per year × Number of years
= 1,000 × 12
= 12,000
Hourly ownership cost = Ownership cost / Total number of hours
= $150,000 / 12,000
= $12.50
b.
Straight-line depreciation = (Purchase cost – Salvage value) / (Life years)
= ($150,000 - $27,000) / 12
= $10,250
Hourly straight-line depreciation = $10,250 / 1,000 = $10.25
Hourly maintenance and repair cost = $10.25 × 50% = $5.125
c.
Hourly tire cost = Total tire cost / Useful life hours
= $7,200 / 3,500
= $2.06
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