General Machine Rate Calculation ROWMEC GT-18

A General Assumptions
1 2000 Scheduled hours/yr This is how many hours each year you would plan for work. Five, 8-hr days per week, 50 weeks per year is 2000 SMH.
2 $2.20 Fuel cost ($/gal off-highway diesel) Check current diesel price trends at http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp
3 0.10 Interest rate (dec. %) This would be either a loan rate or your personal time-value of money.
4 0.85 Utilization (PMH/SMH) This is the ratio of actual working hours to shift hours
B Fixed Equipment Costs
5 $200,000 Purchase Price (less tires on line 13 if you want detail)
6 0.25 Salvage value (dec. %) A general rule-of-thumb is that logging machines are worth about 25% of new after 5 yrs
7 4.0 Insurance rate (% of replacement cost) = $8,000.00 /yr premium payment
8 5 Life (yrs) The ownership period or economic life of the asset
Capital cost = $22.28 /SMH
Insurance = $4.00 /SMH
OWNERSHIP COSTS = $26.28 /SMH
C Variable Equipment Costs (Productive Hour Basis)
9 180 Horsepower
10 0.03 Fuel consumption (g/hp-hr) = 5.4 gal/PMH Fuel = $11.88
11 40 Lube (% of fuel) Oil and Lube = $4.75
12 100 Repair and maintenance (% of dep) = $2,116.50 /month Repair & Maint = $15.00
13 $9,000 Tires 4000 PMH/set Tires/tracks = $2.25
Miscellaneous Consumables Misc. Op Costs
14 $1,140 ie, sawbar 300 PMH/item teeth @$29.25 Item A = $3.80
15 extra A PMH/item Item B =
16 extra B PMH/item Item C =
D Labor Costs OPERATING COSTS = $37.68 /PMH
17 $10.00 Base pay $/hr LABOR = $15.00 /SMH
18 50 Benefits/fringe (% of base) TOTAL = $73.31 $/SMH
$86.25 $/PMH

Forest Operations Research Unit

520 Devall Drive Auburn, AL (334) 826-8700 www.srs.fs.usda.gov/forestops

Prepared by USDA 08/06/2011 Page 1

Prepared by USDA 08/06/2011 Page 2
A "machine rate" is a calculated hourly charge for owning and operating a piece of capital equipment. The classical
approach was defined by Matthews (1942) and more recently by Miyata (1980). Costs are averaged over the owne
life of the asset to estimate a constant hourly charge. The formulae have been used in many forms as a simple me
of cost estimation (e.g. Brinker et al., 2002). The machine rate calculations are simple, easy to understand, do not
require detailed cost history, and are constant over the life of the machine.

However, a number of authors (Rickards 1983; Burgess and Cubbage 1989; Stenzel et al 1985) note the limitations
the machine rate:
1) The treatment of depreciation and interest does not consider the effect on compound interest on capital recovery
2) The machine rate does not consider the effect of tax treatment for various cost categories
3) Costs are assumed constant (average) for all years of ownership
While the limitations are well-known, the standard machine rate is still widely used for quick estimation of machine c
when actual costs are unknown (e.g., FAO 1992).

A more exact approach to estimating machine costs is the discounted cash flow, incorporating additional cost categ
such as tax effects. The detailed calculations are particularly important for economic analysis of expensive equipme
(helicoptors, yarders, harvesters). Butler and Dykstra (1981) and Tufts and Mills (1982) illustrate the application of
discounted cash flow analysis to equipment replacement decisions.

While the machine rate method has limitations, it has advantages for specific applications. The machine rate calcul
presented here uses a modified approach to address some of the stated concerns with earlier formulations such as
Miyata (1980):
1) Capital costs (interest and depreciation) are estimated using an equivalent annual cost calculation (Riggs 1977)
2) Insurance is calculated as % of purchase price, rather than a % of average annual investment
3) Tax costs are not included since most forest machines are not subject to property tax assessment
4) Salvage values are estimated based on Cubbage et al (1991)
5) Potential Repair is estimated as a % of depreciation, but charged at a variable rate depending on utilization.

The spreadsheet also displays calculated annual costs to aid comparison with actual cost data.

References

Brinker, R.W.; Kinard, J.; Rummer, B.; Lanford, B. 2002. Machine rates for selected forest harvesting machines. Cir
296. Auburn, AL: Alabama Agricultural Experiment Station. 29 p.

Burgess, J.A.; Cubbage, F.W. 1989. Comparison of machine rate and cash flow approaches for estimating forest
harvesting equipment costs. Paper 89-7548. Presented at the 1989 Meeting of the American Society of Agricultural
Engineers. St. Joseph, MI: ASAE. 24 p.

Butler, D.A.; Dykstra, D.P. 1981. Logging equipment replacement: a quantitative approach. Forest Science 27(1):2-1

Cubbage, F.W.; Burgess, J.A.; Stokes, B.J. 1991. Cross-sectional estimates of logging equipment resale values. Fo
Products Journal 41(10):16-22.

Food and Agriculture Organization. 1992. Cost control in forest harvesting and road construction. Forestry Paper 99
Rome. 106 p.

Matthews, D.M. 1942. Cost control in the logging industry. New York: McGraw-Hill. 374 p.

Miyata, E.S. 1980. Determining fixed and operating costs of logging equipment. Gen. Tech Rep GTR NC-55. St. Pa
MN: U.S. Department of Agriculture, Northcentral Forest Experiment Station. 16 p.

Riggs, J.L. 1977. Engineering economics. New York: McGraw-Hill. 617 p.

Stenzel, G.; Walbridge, T.A.; Pearce, K. 1985. Logging and pulpwood production. 2nd Ed. New York: John Wiley &
Sons. 358 p.

Tufts, R.A.; Mills, W.L. 1982. Financial analysis of equipment replacement. Forest Products Journal 32(10):45-52
Miyata, E.S. 1980. Determining fixed and operating costs of logging equipment. Gen. Tech Rep GTR NC-55. St. Pa
MN: U.S. Department of Agriculture, Northcentral Forest Experiment Station. 16 p.

Riggs, J.L. 1977. Engineering economics. New York: McGraw-Hill. 617 p.

Stenzel, G.; Walbridge, T.A.; Pearce, K. 1985. Logging and pulpwood production. 2nd Ed. New York: John Wiley &
Sons. 358 p.

Tufts, R.A.; Mills, W.L. 1982. Financial analysis of equipment replacement. Forest Products Journal 32(10):45-52
 equipment. The classical
e averaged over the ownership
any forms as a simple method
asy to understand, do not

1985) note the limitations of

terest on capital recovery.

es

ck estimation of machine costs

ating additional cost categories

ysis of expensive equipment
ustrate the application of

. The machine rate calculator

arlier formulations such as

calculation (Riggs 1977)

stment
ssessment

ending on utilization.

data.

harvesting machines. Circular

es for estimating forest

can Society of Agricultural

h. Forest Science 27(1):2-12.

uipment resale values. Forest

ruction. Forestry Paper 99.

h Rep GTR NC-55. St. Paul,

New York: John Wiley &

ts Journal 32(10):45-52
h Rep GTR NC-55. St. Paul,

New York: John Wiley &

ts Journal 32(10):45-52
General Guidance for Cost Factors

Salvage Value--Depreciation rate varies with machine type. Cubbage et al (1991) found that for common machin
a significant difference between skidders, rubber-tired feller-bunchers and knuckleboom log loaders. For machine
classification became significant. This chart illustrates predicted salvage values.

120

100 0 1 2
Salvage Value (% of new)
RTFB 100 77.70 49.11
80 GrapSkid 100 65.10 46.56
Kboom 100 73.60 60.54
60

40

20

0
0 1 2 3 4 5 6
Machine Age (yrs)

Insurance Costs--Brinker et al (2002) found that insurance rates for liability and comprehensive coverage varied
regional location, and type of machine. Their rates are in the following table:

FORESTRY EQUIPMENT INSURANCE RATES

Equipment % of purchase price
Skidder 5.0
Rubber-tired feller-buncher 4.5
Forwarder/Harvester 4.0
Tracked feller-buncher 3.5
Tracked delimber/shovel logger 2.0
Knuckleboom loader 1.5
91) found that for common machines from 1 to 5 years of age, there was
leboom log loaders. For machines greater than 5 year of age, condition
.

3 4 5
36.45 28.90 23.75
38.35 33.45 30.11
54.75 51.30 48.95
Row 13
Row 14
Row 15

4 5 6

d comprehensive coverage varied with the number of machines covered,