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Equipment Costing: What You Don’t Track Can Hurt You

Equipment Costing: What You Don’t Track Can Hurt You. (The Devil is in the Details). 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’

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Equipment Costing: What You Don’t Track Can Hurt You

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  1. Equipment Costing: What You Don’t Track Can Hurt You (The Devil is in the Details)

  2. 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?

  3. 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

  4. Basic Approach (Step 1) • Sum up all machine costs for the year • Divide by Production Hours (Implicitly Accounts for Down Time) Example:

  5. Basic Approach (Step 2) • Multiply Hours on Tract by Hourly Rate (step 1) • Divide by Tract Production • Result: Cost per Ton Example: (Tract Tons: 4,400)

  6. 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 ??

  7. 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)

  8. 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

  9. 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?

  10. 33¢ / Gallon

  11. Diesel$4.00/Gallon

  12. Fuel Example Must be Performed for Each Machine

  13. Fuel Example – Tract

  14. Implementing the Concept Equipment Cost Template (Logger Participation)

  15. Track & Document - Expenses

  16. Track & Document – Hours by Job

  17. Monitor – Job Costs

  18. Fuel Increase of $0.50

  19. 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.

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