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ESTIMATING OWNING COSTS
(Line Items 1 through 7)
To protect their equipment investment and be able to
replace it, the machine owner must recover over the
ownership period an amount equal to the loss in resale
value plus the other costs of owning the equipment
including interest, insurance and taxes.
The machine owner, for accounting purposes, estimates
resale value loss in advance, and recovers his original
equipment investment by establishing depreciation
schedules according to the various uses of the equipment.
Proper financial and tax assistance is highly recommended
when establishing depreciation schedules.
Considering today’s economic conditions worldwide
and the trend toward larger, more expensive equipment,
many users choose to keep these units on the job well
after they have been fully depreciated for tax purposes.
On the other hand, tax incentives in many areas may
favor trading a machine well before that occurs.
The ownership period in years, the hours per year, and
the total number of hours on a machine, are significant
factors in determining O&O costs. Additionally, since the
ownership period and machine hours can vary widely for
different customers for a given model, it is not practical to
calculate O&O costs using an assumed ownership period.
The customer must provide that information for each
situation.
These same factors will be used to develop the Repair
costs and Planned Maintenance costs by your local Cat
dealer.
The machine depreciation method suggested in this
handbook is not based on or related to any tax considerations,
but rather is a simple straight line write-off based solely
on the number of years and hours the owner expects to use
during the ownership period.
Accordingly, it is imperative that careful consideration be
given the selection of depreciation periods, and that for
owning and operating cost calculations they be based on
actual ownership periods and hours on the machine rather
than tax write-off life.
Typical Application Descriptions
The following tables show typical descriptions for
work performed by each product family for three different
application levels. It is only a guide and can be used
alongwith the fuel and tire charts to help determine fuel and
tire cost factors. Additionally, many times the ownership
period and the number of hours per year a machine is
used, is related to application.
Owning & Operating Costs
Owning Costs
1-7
Edition 47 25-5