Department of Forest and Wood Science 33 y o u r k n o w l e d g - - PDF document

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y o u r k n o w l e d g e p a r t n e r

Department of Forest and Wood Science

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Faculty of Agricultural and Forestry Sciences

Machine Costing

Cost Components

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Department of Forest and Wood Science

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Cost Components

• Fixed costs
• Variable costs
• Operator costs

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Department of Forest and Wood Science

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Fixed Costs

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Department of Forest and Wood Science

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What are Fixed Costs?

• Cost of owning the machine

– Money paid whether the machine works or not – Standing costs – Calculated on a time basis – years/months

• Components:

– Depreciation – Cost of capital – Insurance – Licenses

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Fixed Costs - Depreciation

• Machine has a limited economic life
• Factors effecting economic machine life:

– Normal wear and tear – How you use your machine – Accidents – Improved technology – Changes in production

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• Needs to be replaced when alternative

becomes more profitable to operate

• Depreciation is a method of accumulating

funds for machine replacement

Fixed Costs - Depreciation

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• Information needed to calculate

Depreciation:

– Purchase price (R 1 000 000) – Salvage value (R 10 000) – Economic life (5 years) – Cost for a set of tyres (R 30 000)

Fixed Costs - Depreciation

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• Straight line method
• Depreciates value in equal amounts over life

years 5 000 30 R

• 000

10 R

• 000

000 1 R 

000/year 192 R 

Fixed Costs – Calculation of Depreciation

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• Information needed to calculate Interest:

– Purchase price (R 1 000 000) – Salvage value (R 10 000) – Economic life (5 years) – Interest rate (9 % or 0.09)

Fixed Costs - Interest

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• Average Annual Investment (AAI)

5 2 1)

• (5

000 10 R 1) (5 000 000 1 R       EL 2 1)

• (EL

value Salvage 1) (EL price Purchase      

000 604 R 

Fixed Costs – Calculation of Interest

EL = Economic Life

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AND you have to pay Interest on AAI 360/year 54 R 0.09 000 604 R rate interest AAI



   

Fixed Costs – Calculation of Interest

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• Machine registration
• Machine licencing (public roads)
• Operator licence (public drivers permit)

Fixed Costs – Licence Fees

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• Total fixed costs/year =

Depreciation + Interest + Insurance costs + Licences costs

• Total fixed costs ÷ hours/year = R/hour

Fixed Costs - TOTAL

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Variable Costs