A contractor purchased a grader for $400,000 and expects to use it about 1,000 hours per year.
Question:
A contractor purchased a grader for $400,000 and expects to use it about 1,000 hours per year. The contractor plans to use the grader for 12 years and then realize a salvage value of about $75,000. Tires for the grader cost $12,000 for a set of 6 tires. The useful life of a set of tires is estimated at 3,500 hours. The grader is powered by a 135-horsepower, diesel engine, and diesel fuel costs $3.90 per gallon .
a) What is the estimated hourly ownership cost for the grader (less tires) at a minimum attractive rate of return of 9%?
b) The equipment repair factor for the grader is estimated to be about 50% of the hourly straight-line depreciation for the 12 years of ownership. What do you estimate the hourly maintenance and repair cost for the grader (less tires) to be?
c) What do you estimate the hourly tire cost to be for the grader?
d) What do you estimate the hourly fuel cost to be for the grader under unfavorable working conditions?
e) What do you estimate the hourly filter, oil, and grease cost to be for the grader under unfavorable working conditions?
f) What do you estimate the hourly Total O&O Cost?
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws