Department of Forest and Wood Science 33 y o u r k n o w l e d g - PDF document

y o u r k n o w l e d g e p a r t n e r Department of Forest and Wood Science 33

y o u r k n o w l e d g e p a r t n e r Department of Forest and Wood Science 34

Machine Costing Cost Components Faculty of Agricultural and Forestry Sciences

Cost Components y o u r k n o w l e d g e p a r t n e r • Fixed costs • Variable costs • Operator costs 36 Department of Forest and Wood Science

y o u r k n o w l e d g e p a r t n e r Fixed Costs Department of Forest and Wood Science 37

What are Fixed Costs? y o u r k n o w l e d g e p a r t n e r • Cost of owning the machine – Money paid whether the machine works or not – Standing costs – Calculated on a time basis – years/months • Components: – Depreciation – Cost of capital – Insurance – Licenses 38 Department of Forest and Wood Science

Fixed Costs - Depreciation • Machine has a limited economic life y o u r k n o w l e d g e p a r t n e r • Factors effecting economic machine life: – Normal wear and tear – How you use your machine – Accidents – Improved technology – Changes in production 39 Department of Forest and Wood Science

Fixed Costs - Depreciation y o u r k n o w l e d g e p a r t n e r • Needs to be replaced when alternative becomes more profitable to operate • Depreciation is a method of accumulating funds for machine replacement 40 Department of Forest and Wood Science

Fixed Costs - Depreciation y o u r k n o w l e d g e p a r t n e r • Information needed to calculate Depreciation: – Purchase price (R 1 000 000) – Salvage value (R 10 000) – Economic life (5 years) – Cost for a set of tyres (R 30 000) 41 Department of Forest and Wood Science

Fixed Costs – Calculation of Depreciation y o u r k n o w l e d g e p a r t n e r • Straight line method • Depreciates value in equal amounts over life R 1 000 000 - R 10 000 - R 30 000  5 years  R 192 000/year 42 Department of Forest and Wood Science

Fixed Costs - Interest y o u r k n o w l e d g e p a r t n e r • Information needed to calculate Interest: – Purchase price (R 1 000 000) – Salvage value (R 10 000) – Economic life (5 years) – Interest rate (9 % or 0.09) 43 Department of Forest and Wood Science

Fixed Costs – Calculation of Interest y o u r k n o w l e d g e p a r t n e r • Average Annual Investment (AAI)     Purchase price (EL 1) Salvage value (EL - 1)   2 EL     R 1 000 000 (5 1) R 10 000 (5 - 1)   2 5  604 000 R EL = Economic Life 44 Department of Forest and Wood Science

Fixed Costs – Calculation of Interest y o u r k n o w l e d g e p a r t n e r AND you have to pay Interest on AAI   AAI interest rate   R 604 000 0.09  R 54 360/year 45 Department of Forest and Wood Science

Fixed Costs – Licence Fees y o u r k n o w l e d g e p a r t n e r • Machine registration • Machine licencing (public roads) • Operator licence (public drivers permit) 46 Department of Forest and Wood Science

Fixed Costs - TOTAL • Total fixed costs/year = y o u r k n o w l e d g e p a r t n e r Depreciation + Interest + Insurance costs + Licences costs • Total fixed costs ÷ hours/year = R/hour 47 Department of Forest and Wood Science

y o u r k n o w l e d g e p a r t n e r Variable Costs Department of Forest and Wood Science 48