# QuickBooks Job Costing – Determining Equipment Costs Per Hour

Determining the cost-per-hour for each piece of equipment or machinery that your company owns and uses on a job site is a great tool for understanding, and even eventually, recouping the actual cost of the machine itself. Once you have this information, you can improve the accuracy of your bidding, book equipment and machinery costs in your accounting software, and even identify ways in which you can maximize expenditures throughout the year.

Equipment and machinery cost-per-hour rates are calculated by adding together three distinct pieces of information:

1. What it costs to own or lease (acquisition cost-per-hour)
2. What it costs to maintain (maintenance cost-per-hour)
3. What it costs to run operate it (running time fuel consumption cost-per-hour)

1. Calculating Acquisition cost-per-hour (ACPH)

Formula: Divide the total price paid (including interest paid) by the projected number of lifetime hours.

Example:

21″ rotary mower purchase price: \$1,100.00

Interest none

Lifetime hours: 750 hours (2.5 hours/day, 5 days week/30 weeks/year for 2 years)

Salvage value: none

Acquisition cost-per hour: \$1,100.00 divided by 750 hours = \$1.47 per hour

2. Calculating Maintenance cost-per-hour (MCPH)

Formula: Divide the estimated lifetime maintenance cost (repairs, parts, labor, blades, spark plugs, oil changes, filters, etc.) by the number of lifetime hours.

Example:

Maintenance cost per hour: \$600.00 divided by 750 hours = \$0.80 per hour

3. Calculating Running-time Fuel Consumption cost-per-hour (RT/FC CPH)

Formula: Determine how long one gallon of fuel lasts for the piece of machinery. Divide the price per gallon of the fuel by the hours used each day.
Example:

Cost per gallon of fuel: \$2.50

Running-time fuel consumption cost-per-hour: \$2.50 divided by 2.5 hours = \$1.00 per hour

Total Cost-Per-Hour: \$1.47 Acquisition cost-per-hour (ACPH)\$0.80 Maintenance cost-per-hour (MCPH)

\$1.00 Running-time Fuel consumption cost-per-hour (RT/FC CPH)

\$3.27

Let’s look at another example, this time determining the cost-per hour for a compact tractor.

Purchase Price: \$23,000.00

Interest: \$ 5,520.00

Salvage Value: \$ 8,000.00

Life Expectancy: 3,000 hours (300 hours per year for 10 years)

Fuel Price: \$2.50 per gallon

Fuel Used per hour: 1.5 gallons

Acquisition cost-per-hour (ACPH): (\$23,000.00 \$5,520.00 – \$8,000.00 = \$20,520.00)

\$20,520.00 divided by 3,000 hours = \$6.84

Maintenance cost-per-hour (MCPH): \$18,000.00 divided by 3,000 hours = \$6.00

Running-time fuel cost-per-hour (RT/FC CPH): \$2.50 divided by 1.5 hours = \$1.67

Total Cost-Per-Hour: \$6.84 \$6.00 \$1.67 = \$14.51

Notes: Your dealer should have data regarding estimated lifetime maintenance cost and fuel consumption. If you buy used equipment, cost it out using the “new” purchase price. The total cost-per-hour is usually the same for new and used equipment, and useful life, repair and maintenance costs, are easier to determine for new equipment. Using the new purchase price also automatically adjusts your rates for inflation and price increases.You can cost out leased machines using the same formulas and adjusting the life expectancy, lifetime maintenance and fuel price, to account for the shorter term.

To determine fuel cost, you can also fill up the tank and divide the fill-up price by the total running hours.

Even if you prefer to base your estimates on a per-labor-hour rate, the Cost-Per-Hour method prevents you from understating or overstating the actual equipment cost for the job being bid.

You can verify your Cost-Per-Hour figures in several ways:

1. Compare your hourly rates to those of your local equipment rental company. Reduce their rental rates by 40-50% to remove their markups. Your rates should be reasonably close to theirs.
2. Contact your local dealer to verify maintenance costs, production rates, fuel consumption, lifetime hours, etc.
3. Contact your local Department of Transportation (DOT) office, they have manuals containing CPH data for maintenance, and will often share these figures with you for comparison purposes.

Ways in which you can reduce your Cost-Per-Hour figures:

1. Take advantage of multi-unit discounts offered by some manufacturers.