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MECHANICAL PLANT COSTS
Lecture 2
Contents
• Construction Equipment
• Construction equipment classification
• Renting versus purchasing equipment
• Equipment costs
• Depreciation
• Operating costs
• Preparation of net cost unit rates
Construction Equipment
• Equipment refers to all the equipment, tools, and
apparatus necessary for the proper construction
and acceptable completion of a project.
• In a construction project, equipment costs are
typically divided into portions. The first and
bigger portion covers the cost of equipment and
is often referred to as equipment cost.
• The second and smaller portion covers the cost of
hand tools.
Construction equipment classification
• Equipment could be classified based on their
use as specific use or general use.
• Specific use equipment

• General use equipment
Specific use equipment
• Specific use equipment is for a specific work
item or items on the job.
• The most equipment-intensive operations are:
site work, concrete and metal works. Some
typical equipment used for site work includes:
tractors, scrapers, front shovels, hoes, loaders
and backhoe loaders, hauling units, and
compactors.
Front shovel
Haulers
General use equipment
• General use equipment has shared utilization by
all subcontractors on the construction site and is
not associated with any particular work item or
items.
• These pieces of equipment are kept on the site
over a longer period of time, throughout almost
the entire construction phase.
• Some examples of general use equipment
include: cranes, air compressors, light towers,
forklifts and pumps.
Air compressor
Light towers
Renting versus purchasing equipment
• There can be distinct advantages to renting equipment,
including:
- No need to maintain a large inventory of specialized

equipment.
- Continuous access to the newest and most efficient items
of available equipment.
- No need for equipment warehouse and storage facilities.
- Reduced need to employ maintenance staff and operate
facilities for their use.
- Equipment cost accounting is simpler when equipment is
rented.
Equipment costs
• Estimating equipment cost involves identifying
the ownership and operating costs.
• Ownership costs include: initial cost, financing
(investment) costs, depreciation costs and
taxes and insurance costs.
• The operating costs include: maintenance and
repair costs, storage costs and fuel and
lubrication costs.
Initial cost
• The initial cost is the total cost required to

purchase a piece of equipment.
• Generally, initial cost is made up of: price at
the factory or used equipment price, extra
options and accessories, sales tax, freight and
assembly or setup charges.
• The initial cost is very straight forward,
whereas the other costs require more analysis
and computation.
Investment cost
• The purchase of construction equipment requires
a significant investment of money. This money
either be borrowed from a lender, or it will be
taken from reserve fund of the contractor.
• Either the lender will charge an interest rate for
the borrowed money, or the contractor will lose
any interest money that could be gained if the
contractor invest that amount of money used to
purchase a piece of equipment.
Calculation of equipment cost
• In order to calculate the cost of finance (or
investment cost) of an equipment,
Where, P = Purchase price

F = Salvage value
n = No. of years
i = Annual interest rate.
Depreciation
• The depreciation in defined as “the decrease
in market value of an asset”.
• A machine may depreciate (decline in value)
because it is wearing out and no longer
performing its function as well as when it was
new.
• Many kinds of machinery require increased
maintenance as they age, reflecting a slow but
continuing failure of individual parts
• To calculate amount of depreciation
• To obtain the annual depreciation charge at

any year, Dn, the total amount to be
depreciated (initial value, P – salvage value, F)
is divided by the useful life in years, N.
(Annual depreciation charge) Dn= (P – F) / N.

Operating costs
• The amounts consumed by a piece of

equipment vary with the type and size of
equipment, the conditions under which it is
operated. An equipment is seldom used its
total horse power and also it is seldom to
work for 60 minute/hour.
• Maintenance and repair costs
The cost for maintenance and repairs
include the expenditures for replacement
parts and the labor required to keep the
equipment in good working condition.
Historical cost records of maintaining and
servicing equipment are the most reliable
guide in estimating maintenance and repair
cost.
Fuel consumption
When operating under standard
conditions, a gasoline engine will consume
approximately 0.06 gallon of fuel for each
horsepower-hour developed. A diesel engine
will consume approximately 0.04 gallon of fuel
for each horsepower-hour developed.
Lubricating oil consumption
The quantity of lubricating oil consumed
by an engine varies with the size of the
engine, the capacity, the equipment condition
and the number of hours between oil
changes.
Method of determining a net cost
unit rate from first principles.
Steps to be taken when determining a net cost
unit rate
1. Select a suitable basis.

2. Calculate the material cost.
3. Calculate the labor cost.
4. Calculate the plant cost.
5. Total the material, labor and plant costs.
6. Calculate the net cost unit rate by dividing the
total by the basis

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MECHANICAL PLANT COSTS

• Specific use equipment

- No need to maintain a large inventory of specialized

• The initial cost is the total cost required to

Where, P = Purchase price

• To obtain the annual depreciation charge at

(Annual depreciation charge) Dn= (P – F) / N.

• The amounts consumed by a piece of

1. Select a suitable basis.

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