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How to Calculate Internal Charge Rates for Leased Equipment

EquipmentWatch’s Internal Charge Rate Calculator is the quintessential way to quickly and accurately calculate their hourly rates. For owned equipment, the calculator allows the equipment owner to update critical ownership factors like original price and annual use hours. It also allows users to adjust for additional cost factors like overhaul costs, mechanic’s wage, salvage value, overhead costs and more. The tool also breaks down costs per hour for depreciation, cost of facilities capital, overhead, overhaul labor, and overhaul parts; all of which are crucial for an equipment owner to understand when looking at their ownership costs.
When leasing a machine, determining internal charges rates is slightly different because factors such as depreciation and overhaul are not concerns because the length of a lease is generally much shorter than the economic life of a machine. In order to determine “ownership” rates for leased equipment, simply add the hourly cost of facilities capital and hourly overhead costs together.

Leased equipment “ownership” rates = hourly overhead cost + hourly cost of facilities capital

For examples sake, let’s take a look at a Caterpillar 120M that was purchased for $350,000.00 and gets used 1,500 hours per year. The hourly ownership rate for an owned asset comes out to be $40.78, yet the hourly “ownership” rate for a leased asset is around $11.33. A difference of almost $30.00 per hour for just one asset shows just how critical it is to understand the differences in calculating rates for owned assets versus leased assets.