Question

1. A new wheel loader has an initial cost of $900,000 which is depreciated over 7 years using MACRS with half year convention. Repair/maintenance parts and labor cost 6.00 S/hr and fuel, fluids, and tires cost 32.50 $/hr. The equipment operator gets paid 25.00 S/hr with a benefit rate of 42%. Assuming the machine is in operation 80 hours per week, 52 weeks per year how much coal will the loader have to load out to cover its operating costs in year 1 if the coal price is 42 $/ton?

Answer 1

Initial Cost of wheel loader	$	900,000
Depreciation for Year 1	=	Cost × 1 × Depreciation Convention
(using MACRS)		Useful Life
	=	9,00,000 X 1 X 1/2
		7
	=	64,286
Total hours worked in Year 1	=	No. of weeks X No. of hours per week
	=	52 weeks X 80 hours
	=	4160 hours
Overtime hours per year	=	52 weeks X 40 hours
	=	2080 hours
Overtime wage rate	=	Rate per hour + (Rate per hour X Benefit percentage)
(beyond 40 hours per week)
	=	$ 25 + ($ 25 X 42%)
	=	$ 25 + $ 10.5
	=	$35.50
Calculation of operating cost for Year 1
Particulars	Calculation	Amount ($)
Depreciation		64,286
Repair & Maintenance & labour cost	$ 6 per hour X 4160 hours	24,960
Fuel Fluids & Tires	$ 32.50 per hour X 4160 hours	135,200
Equipment operator (normal hours)	$ 25 per hour X 40 hours per week X 52 weeks	52,000
Equipment operator (overtime hours)	$ 35.50 per hour X overtime hours (2080 hours)	73,840
Total Operating Cost	$	350,286
Coal price per tonne	$	42
Total coal to be loaded by loader in Year 1	= Total operating cost / coal price per tonne	8,340	Tonnes