Equipment Costing: What You Don’t Track Can Hurt You (The Devil is in the Details)

Goal: Enjoy Life - make money Focus on Tract Profitability Revenue is the easy part (usually) Contractor Pay is straightforward Employee Pay is somewhat complicated – Determine the employee ‘load’ Cost of your own equipment is hard to calculate. – How much per ton does it cost to run a logging machine?

Equipment Costs Full Cost Accounting Operating Expenses – Fluids, Service Operator Expenses – Labor, Overhead Capital Expenses – Depreciation Return on Investment – Think of yourself as the bank

Basic Approach (Step 1) Sum up all machine costs for the year Divide by Production Hours (Implicitly Accounts for Down Time) Annual Costs$220,000 Production Hours2,000 Hourly Cost$ Example:

Basic Approach (Step 2) Multiply Hours on Tract by Hourly Rate (step 1) Divide by Tract Production Result: Cost per Ton Tract Hours200 Hrs Cost/Hour$110/Hr Tract Mach. Cost$22,000 Cost per Ton$5.00 Example: (Tract Tons: 4,400)

Operator Expenses Direct Payroll Pay for both Production Time and non- Production (down) Time Payroll Load – Payroll Taxes, Benefits (Company Share) Share of allocated overhead ??

Capital Expenses Capital Cost of the Machine Divided by Lifetime Hours (Depreciation) – E.g. $500,000 Machine / 10,000 Hrs = $50/hr Capital Costs Should Include Capital Repairs – E.g., Replacing an Engine Insurance Costs Profit (Return on Investment)

Return on Investment Think of Yourself as the Bank – You supply the cash Analogy: The labor you supply deserves a market price; so does your capital Economic “profit” is that earned over and above a normal return on investment Accounting profit is a regulatory concept

Operating Expenses Repairs and Maintenance – E.g., Filters, Tires, Hoses – Capital Repairs included in Capital Costs Service Performed by Employees Mechanics (Employee) must be assigned their full cost (mimic cost of outside mechanic) Fuel – Big Problem – If the price of fuel goes up $0.50 per gallon, how much does my cost per ton change?

33¢ / Gallon

Diesel $4.00/ Gallon

Fuel Example Fuel Price Change$0.50 Consumption per Hour5 gallons Production (Tons/Hour)25 Additional Cost$.10/Ton Calculation= 0.50 x 5 / 25 Must be Performed for Each Machine

Fuel Example – Tract ActivityHours Hrly Rate 1 Hrly Rate 2 Falling210$135.00$ Delimbing200$130.00$ Skidding130$125.00$ Loading55$120.00$ Total Cost$77,200$78,661 Tons5,000 Cost / Ton$15.44$15.73$0.29

Implementing the Concept (Logger Participation) Equipment Cost Template

Track & Document - Expenses

Track & Document – Hours by Job

Monitor – Job Costs

Fuel Increase of $0.50

Summary Track all your machine expenses Work with a system (worksheet, software) that allows you to estimate your hourly machine costs Track labor & machine hours by activity on each tract/job It’s Your Money... Do You Know Where it Is? Information is POWER.