Machine Cost Calculator Spreadsheet

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Authored by: David Chen, CPA

Reviewed and validated for financial accuracy and methodology.

Use this comprehensive **Machine Cost Calculator Spreadsheet** to accurately determine the Total Cost of Ownership (TCO) per hour or per unit of output for your industrial, commercial, or construction equipment. Understanding the true operational cost is essential for effective budgeting and strategic capital expenditure decisions.

Total Cost Per Hour Calculator

Machine Cost Calculator Spreadsheet Formula

1. Annual Depreciation (D):

$$D = \frac{(P – S)}{Y}$$

2. Total Annual Cost (T):

$$T = D + M + (H \times O)$$

3. Cost Per Hour (CPH):

$$CPH = \frac{T}{H}$$

Formula Sources: Equipment World, University of Minnesota Extension

Variables Used in the Calculator

  • Initial Purchase Price (P): The initial capital expenditure required to acquire the machine or asset.
  • Expected Life (Y): The useful life of the machine, typically measured in years, for depreciation purposes.
  • Annual Hours Used (H): The estimated number of hours the machine will be operational annually. This is the denominator for hourly cost calculation.
  • Annual Maintenance Cost (M): Fixed annual costs for routine maintenance, insurance, or taxes that do not vary with usage hours.
  • Hourly Operating Cost (O): Variable costs incurred only when the machine is running (e.g., fuel, lubricants, operator wages, consumables).
  • Salvage Value (S): The estimated resale value of the machine at the end of its expected life.

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What is Machine Cost Per Hour?

Machine Cost Per Hour (CPH), or sometimes referred to as the Total Cost of Ownership (TCO) per hour, is a critical metric used by businesses, particularly in construction, manufacturing, and transportation, to understand the true economic expense of operating a piece of equipment.

This metric combines both Fixed Costs (like depreciation, insurance, and interest) and Variable Costs (like fuel, maintenance, and labor) and divides them by the total annual usage hours. A precise CPH is essential for accurate job quoting, ensuring profitability, and making informed decisions about whether to repair, replace, or rent equipment.

By using a dedicated calculator spreadsheet, businesses can shift from rough estimates to data-driven figures, directly impacting financial forecasting and capital budgeting processes.

How to Calculate Machine Cost Per Hour (Example)

  1. Determine Annual Depreciation (D): Subtract the Salvage Value ($15,000) from the Purchase Price ($150,000) and divide by the Expected Life (10 years). ($150,000 – $15,000) / 10 = $13,500.
  2. Calculate Annual Fixed Costs (A): Add Annual Depreciation ($13,500) and Annual Maintenance Cost ($5,000). $13,500 + $5,000 = $18,500.
  3. Calculate Annual Operating Costs (R): Multiply Annual Hours Used (2,000 hours) by Hourly Operating Cost ($15.50). 2,000 * $15.50 = $31,000.
  4. Calculate Total Annual Cost (T): Sum the Annual Fixed Costs ($18,500) and Annual Operating Costs ($31,000). $18,500 + $31,000 = $49,500.
  5. Calculate Cost Per Hour (CPH): Divide the Total Annual Cost ($49,500) by the Annual Hours Used (2,000 hours). $49,500 / 2,000 = $24.75 per hour.

Frequently Asked Questions (FAQ)

What is the difference between Fixed and Variable Machine Costs?

Fixed costs (like depreciation, insurance, and property tax) remain constant regardless of how much the machine is used. Variable costs (like fuel, consumables, and hourly maintenance) change directly with the amount of machine usage.

Why is Salvage Value important for CPH calculation?

Salvage value reduces the total amount that must be depreciated over the machine’s life. A higher salvage value means lower annual depreciation, which, in turn, results in a lower Cost Per Hour.

Should operator wages be included in machine cost?

Yes, operator wages are often included in the Hourly Operating Cost (O) as they are directly tied to the machine’s usage time. This provides a more accurate Total Cost of Ownership (TCO) for job costing.

What if the Annual Hours Used (H) is zero?

If H is zero, the machine’s annual fixed costs (depreciation and maintenance) would be divided by zero, resulting in an undefined or infinite CPH. This calculator prevents division by zero and requires a positive value for Annual Hours Used.

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