Question

A contractor has purchased a wheeled loader for $130,000 and expects to use the loader an average of 1,500 hours per year. Tires cost $6,000 to replace (estimated to occur after each 4,500 hours of use), and major repairs will be needed every 6,000 hours at a cost of $5,000. The contractor expects to be able to sell the loader for $10,000 after she has used it for 15,000 operating hours. Fuel, oil, and minor maintenance cost about $19.75 for each hour the loader is used. Interest, insurance, and taxes total about 16%. How much should the contractor charge per hour for use of the loader to recover her costs?

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Answer 1

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Wheeled loader cost for $130,000

Average of 1,500 hours per year.

Tires cost $6,000 to replace (estimated to occur after each 4,500 hours of use), and major repairs will be needed every 6,000 hours at a cost of $5,000. The contractor expects to be able to sell the loader for
$10,000 after she has used it for 15,000 operating hours. Fuel, oil, and minor maintenance
cost about $19.75 for each hour the loader is used. Interest, insurance, and
taxes total about 16%.

Selling Price= $ 10,000

Time=10 yrs =15000 operating hours

Total cost for 15000 operating hour=130,000+tire cost+maintenance+19.75*15000+0.16*130,000=130000+18000+10000+296250+20800 =$ 475050

So total cost to recover=475050-10000=465050

Average charge per hour=465050/15000=$ 31.03