Internal Charge Rate Calculator

 

Internal Charge Rate Calculator Introduction

The EquipmentWatch Internal Charge Rate Calculator gives you the opportunity to accurately calculate internal charge rates for usage of your company’s or organization’s heavy equipment assets with cost estimates and trends based on the data collected from hundreds of thousands of models monthly. You can measure the impact that each of your asset’s cost factors has on ownership and operating costs as rates are recalculated in real time once a cost factor is adjusted.

This guide was created to help you effectively use the Internal Charge Rate Calculator in order to achieve accurate and competitive internal charge rates.

Creating Internal Charge Rates, Detail Page

There are two ways to view the Internal Charge Rate Calculator: a detailed view or a list view.  The detailed view allows you to better understand the impact each factor has on your final internal charge rates.  As you scroll down the page you can update critical factors, general cost factors, ownership cost factors, and operating cost factors

Creating Internal Charge Rates, Detail Page

 

Creating Internal Charge Rates, List Page

There are two ways to view the Internal Charge Rate Calculator: a detailed view or a list view.  The list view is for experienced users of the Internal Charge Rate Calculator.  As you scroll down the page you can update critical factors, general cost factors, ownership cost factors, and operating cost factors.

Creating Internal Charge Rates, List Page

Adjusting Model Configurations

Model configurations can be adjusted by simply clicking on the ‘EDIT’ button in the top right-hand corner of the Internal Charge Rate page (circled below).

IRC-adjust1

After clicking on the ‘EDIT’ button, the prompts (downward pointing arrows) for the drop down menus of the different components of your model, including its year of manufacture, will appear along the ‘YOUR CONFIGURATION’ bar at the top of the page. Simply click on the drop down menu of the configuration component that you wish to adjust and select the configuration that most closely matches your asset. After you finish making all of your configuration adjustments, click on the orange confirmation box at far right of the page.

IRC-adjust2

Adjusting Cost Factors

Individual cost factors (e.g. Original Price, Annual Use Hours, Annual Overhead) can be updated manually by simply clicking in the field of the cost factor that you would like to adjust and typing in an updated value. Once an updated value has been inputted, you’ll notice that the charge rates will recalculate and the subscripts underneath each will show the difference in hourly rate between as well as their respective percentage changes (circled below). Any dependent cost factors that also changes as a result will be listed in the box below each cost factor

IRC-adjust3

Printing Internal Charge Rates

If you would like to print your internal charge rates for submission or for your own records, you can click the print button at the top right corner of the page.

Printing Internal Charge Rates

Downloading Internal Charge Rates

If you would like to download your internal charge rates, you can click the download button at the top right corner of the page.

Downloading Internal Charge Rates

What is the Internal Charge Rate Calculator?

EquipmentWatch’s Internal Charge Rate Calculator is a comprehensive tool for estimating your ownership and operating costs for construction equipment manufactured within the past 30 years. It is specifically designed to assist the user in determining the required hourly ownership and operating allowances necessary to maintain solvency.  For each equipment listing, current industry average data is presented as a default with the opportunity for the user to incorporate site-specific actual costs into the rate calculation.

The analytic methods used to derive costs are accepted throughout the construction industry as a means to obtain guidelines for charge rate estimates. Contact is maintained with manufacturers, industry organizations, and individual contractors to ensure that these guidelines conform to current industry practice.

This information is designed to provide accurate and authoritative information in regard to the subject matter covered. While all efforts have been made to assure total accuracy, the variable nature of the information and informational sources precludes any warranties of specific accuracy in any specific instance.

 

Costing Assumptions and Methodology

Both fixed and variable hourly costs are presented. Fixed costs (e.g. depreciation, cost of facilities capital, and indirect equipment-related costs) must be accrued whether or not the equipment is working. Variable costs (e.g. overhaul, field repair, fuel, lubrication, tires, and ground engaging component allowances) should be accrued on an hour basis as the machine works.

It is recommended that the costs listed in this guide be adjusted for unusual or specific job conditions, multiple shift usage, economic conditions that are particular to a specific region, and equipment standby periods.

Heavy equipment cost data was obtained through extensively surveying contractors and then translating the collected cost data as ratios of manufacturer suggested retail prices (MSRPs) of heavy equipment models.  These factors, when applied to current list prices, will suggest amounts necessary to recover the total investment in equipment.

The factors can be applied equally to all makes and models within an equipment class and size category, provided that the equipment is in average condition and working in average job conditions.

This product does not attempt to measure or describe the engineering or performance characteristics of specific models made by specific manufacturers.  Whereas a manufacturer may rightly claim the advantages of its products, the information herein should not be used to substantiate such claims.

  • Model:  The EquipmentWatch Cost Guide database contains models manufactured within the last thirty years. Information on models and specifications is sourced from their respective manufacturers.  Particular specifications, such as "Transmission", are listed to facilitate equipment identification. For models that happen to be unavailable, use a comparable model that shares subtype and size class categories with the unavailable model in question. Models that are discontinued are listed with the year in which it was discontinued shown in parentheses.
  • Capacity:  The equipment's capacity, provided by the manufacturer, is expressed in the units appropriate for a given equipment class.
  • HP:  Horsepower rating is the value used for calculating fuel and lubrication consumption.  Whenever possible, the net flywheel horsepower is used based upon manufacturer ratings. For motors, it is as listed by the manufacturer for a given RPM.

Cost Results and Formulas

The Internal Charge Rate Calculator lists hourly ownership and operating costs for construction equipment (fixed and variable costs are presented in this product). The fixed costs--depreciation and equipment-related overhead--begin when equipment is purchased and continue regardless of equipment use. The variable costs--overhaul, field repair, fuel, lube, tires, and ground engaging components--occur during machine use and are therefore accrued during actual operating hours.

The factors used to develop these costs are based on average equipment use and job conditions. These factors are reviewed continuously by the EquipmentWatch analyst team and are adjusted according to contractors' experience reported in surveys, recent market trends and cost information reported by equipment manufacturers.

  • Depreciation:  The Depreciable basis includes the discounted Manufacturer’s list price plus sales tax and original freight costs, minus the cost of a new set of tires (if wheel mounted), and minus the salvage value at the end of the machine's economic life.  The depreciation period is expressed in years, for the purposes of this guide, and is calculated by dividing the Economic life hours by the default annual use hours.Depreciation refers to capitalization of the acquisition cost of equipment over its economic life; it is not meant to express the amounts used for taxation.[P * (1 – D) – (P * S) + (P * (1 – D) x T) + (P * F) – (P * TF)] * (AH / EH)

    Where:

    P = Manufacturer’s list price

    D = Discount percentage

    S = Salvage value percentage

    T = Sales tax

    F = Freight

    TF = Tire factor

    AH = Annual use hours

    EH = Economic life hours

  • Cost of Facilities Capital (CFC):  Cost of Facilities Capital (CFC), which is not the same as interest charges, addresses the cost of money invested, whether the machinery is purchased with cash or financed.  CFC is calculated by the following formula:[((N – 1) x (1 + S) + 2) * CMR] / (2 x N) = CFC factor(CFC factor  *  P)/AH = Hourly CFC Cost

    Where:

    N             =             Economic life in years (Economic hours/Annual Hours)

    S              =             Salvage value percentage

    CMR      =             Cost of money rate (as set by the Treasury Department each January 1 and July 1)

    P             =             Manufacturer’s List Price

    CFC        =             Cost of facilities capital

    AH          =             Annual hours

  •  Equipment Overhead:  Equipment overhead costs include the direct costs of normal risk insurance and property taxes along with the indirect costs of storage, security, mechanics supervision, inspection, licenses, and record keeping.Profit, project overhead, and general company overhead costs such as office facilities and supplies are not included.Overhead is listed as one total hourly dollar figure. Some of these costs may be recovered in project or general company overhead. To avoid duplication of recovered costs, adjustments may be necessary for items in the total overhead cost. The following approximate breakdown of the overhead costs shows the percentage by which the specific overhead items can be modified or eliminated from the total overhead costs:

    Approximate % of Total Overhead

    Insurance            56%

    Taxes    22%

    Licenses               4%

    Storage, Security              7%

    Record Keeping                2%

    Mechanics' Supervision, Inspection         9%

  • Overhaul:  Ownership rates include an allowance for major overhaul costs necessary to keep a machine functional throughout its economic life.  This allowance covers the periodic rebuilding of engines, transmissions, undercarriages, hydraulic pumps, cylinders and other major components.This item does not include complete overhauls and remanufacturing, the type of which is done to extend the economic life of the equipment.  These types of overhaul and remanufacturing costs should be treated as capital expenditures, and depreciated over a newly established economic life.Some adjustments to the base rates are appropriate.  If, for example, the economic life is shortened due to severe working conditions, then overhaul Labor and Parts costs should be adjusted to reflect the faster accrual rate.  This principal does not apply however, if the economic life is adjusted for tax accounting purposes or for any other reason except actual job conditions.

    Actual overhaul and field repair costs increase with equipment age, regardless of job conditions. The Internal Charge Rate Calculator calculates these costs by assuming a steady accrual of funds that will be used when needed. This means that the amount accrued in earlier stages of equipment life will be more than immediately needed, but will be offset by the higher funds needed toward the later stages of equipment life.

  • Overhaul - Labor:  Overhaul labor is accrued for each machine working-hour to offset charges incurred to replace, rebuild and recondition major components and are to be included whether repair is performed in the contractor's maintenance facility or at an outside shop.  For adjustments and comparisons, the average labor cost per hour can be related to the average mechanic's wage (including fringe benefits) published.
  • Overhaul - Parts:  Overhaul parts costs are accrued for each machine working-hour to offset costs incurred for periodic replacing, rebuilding and reconditioning of major components, such as engines, transmission, undercarriages, etc.
  • Field Repair:  Operating cost includes field repair defined as routine, daily servicing of the equipment and would include repairing, replacing or adjusting small components such as pumps, carburetors, injectors, batteries, filters, belts, gaskets, and hoses.The cost of extraordinary operating expendables is not included.  Certain ground engaging components, such as hammer and drill bits, drill steel, augers, saw blades, and tooth-bits, are normally excluded from the "Estimated Operating Cost/Hr." because of their highly variable wear patterns. It is recommended that these costs be recovered separately
  • Field Repair - Labor:  Field repair labor costs are accrued on a machine working-hour basis to offset charges incurred to perform normal field repair and maintenance.  Costs listed under this heading represent an annual average over the economic life of the equipment.For adjustments and comparisons, the average labor cost per hour can be related to the average mechanic's wage (including fringe benefits) published.
  • Field Repair - Parts:  Field repair parts costs are accrued on a machine working-hour basis to offset the costs for supplying parts necessary to keep the equipment operating in good condition. These parts consist of anything short of a major component overhaul or replacement.  This annual cost includes “miscellaneous supply parts” referred to in the cost adjustment section.  Costs listed under this heading represent an annual average over the economic life of the equipment.
  • Ground Engaging Components (G.E.C.):  These costs include repair and/or replacement, either in whole or part, of ground engaging components such as pads, drums, teeth and cutting edges.
  • Tires:  Tire costs include the repair and/or replacement of tires.  Listed tire costs are based on the current price of tires, typical contractor discounts, and the tire life listed which reflects average working conditions.
  • Electric/Fuel:  Fuel costs are calculated using average load factors, equipment horsepower, and the price of fuel per gallon. Actual fuel consumption will depend on variations in load factors, elevation, engine performance, operator efficiency, and terrain.
  • Lube:  Lubrication includes the costs of oils, grease, coolants and filters.  Labor and ancillary equipment involved in servicing is also included.  (e.g.  The cost of a lube truck and operator is included in this cost).  For dual engine models, costs for both equipment and carrier are included.

Multiple Shifts and Standby Adjustments

Costs are calculated with the underlying assumption of single shift operation.  Accordingly, certain fixed equipment ownership costs, namely Depreciation, CFC, and Overhead, require special consideration for multiple shift and standby calculations.

  • Multiple Shifts:  No industry standard exists regarding the handling of fixed Ownership costs in computation of overtime rates. It is the responsibility of the contracting parties to agree on an appropriate method.  Two commonly used methods are outlined below as examples of how overtime rates may be established.At the rate of 1/8th of the daily rate for each hour in excess of eight hours, 1/40th of the weekly rate for each hour in excess of forty hours, and 1/176th of the monthly rate for each hour in excess of 176 hours within a thirty-day period.

    At 50% of the monthly, weekly, daily, or hourly Ownership rate (including Overhaul parts and labor) for each overtime hour worked.  For example:

    Single shift (8 hours)       =             $100 per day

    Double Shift (16 hours) =             $150 per day

    ($100 for the first shift and $50 for the second)

    Triple shift (24 hours)     =             $200 per day

    (100 for the first shift and $50 each for the second and third)

    Note: Operating Costs should be charged at the full rate during all shifts.

    If you anticipate multiple shift usage and use the cost adjustment features of the Internal Charge Rate Calculator to generate a multiple shift rate (by adjusting the Annual use Hours), be advised that the CFC and Overhead hourly rates will reflect user adjustments to the “annual use hours”, but the Depreciation calculation will not and should be adjusted manually.

  • Standby:  Standby time can be defined as the period during which equipment is assigned to a job and available for work, but is not put into operation until needed.  Only the fixed Ownership costs of Depreciation, CFC, and Overhead costs should be accrued for every hour the equipment is on standby.  Overhaul and Total Hourly Operating Costs are not accrued during standby time.  Standby is normally limited to eight hours per 24-hour period, and accrual of standby funds normally begins after the equipment is idle for 16 hours in a 24-hour period.

 

 

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