Operating Cost

Operating cost of an equipment is based on the following factors:

1. Cost of investment
2. Depreciation cost
3. Cost of major repair
4. Cost of fuel and lubricants
5. Cost of labour
6. Servicing and field repairs
7. Overheads

1. Cost of Investment

By investment made on the equipment the owner is losing an amount equal to the interest or return one would have otherwise received from bank or other sources of investment. For the purpose of calculating the total cost of investment, the interest, the taxes, insurance, etc., may be taken as 10–15% of the cost of equipment.

2. Depreciation Cost

Because of wear and tear the cost of equipment gets depreciated. An amount of earning has to be set aside, to balance the depreciation, so that the accumulated amount can be used at the end. This amount is recovered from the earnings of the equipment and forms a charge on the operating cost.

3. Cost of Major Repair

Major repairs are those which are incurred when the equipment is taken to a workshop. This repair involves replacement of major parts of the equipment, overhauling and servicing. This incurred expense is added to the capital cost so that the expenditure is distributed over the years and included in the operating cost of the machine.

4. Cost of Fuel and Lubricant

While calculating the fuel consumption of the equipment, it is the general practice to consider the full load condition and constant speed under favourable conditions. As the equipment would not be working always at the ideal condition and so a reduction factor of 60% is considered.

5. Cost of Labour

The cost of labour includes (i) the wages of the working crew and (ii) wages of supervisory staff.

6. Servicing and Field Repair

All expenses involved in the maintenance normally met during the operation of equipment except major repairs are included under this. This demands periodical service of the equipment.

7. Overhead

In a large project the whole establishment is work charged. Any unforeseen expenses which are not work charged or non-productive are distributed to the various work producing elements for purpose of cost control.