Equipment Cost Analysis

Document Type: Guide
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controller, Operations Manager, Equipment Manager

Purpose

Establish procedures for analyzing equipment costs to support lease vs. buy decisions, optimize utilization, and ensure accurate job costing.

Why Equipment Cost Analysis Matters

Equipment Decisions Impact:

Significant capital investment
Long-term financial commitment
Job cost accuracy
Tax implications
Cash flow
Operational flexibility

Without Analysis:

Overpay for equipment
Undercharge jobs
Miss tax benefits
Tie up capital unnecessarily
Lose competitive advantage

Equipment Cost Components

Total Cost of Ownership (TCO):

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         TOTAL COST OF OWNERSHIP
================================================================

Equipment: _______________________________________________
Purchase Price/Value: $________________
Expected Life (years): _____
Expected Hours/Year: _____

================================================================

OWNERSHIP COSTS (Fixed):

Depreciation:
  Purchase price: $________________
  Salvage value: $________________
  Depreciable base: $________________
  Life (years): _____
  Annual depreciation: $________________

Interest/Financing:
  Loan amount: $________________
  Interest rate: _____%
  Annual interest: $________________

Insurance:
  Annual premium: $________________

Property tax (if applicable):
  Annual tax: $________________

Storage/parking:
  Annual cost: $________________

TOTAL ANNUAL OWNERSHIP: $________________

Per hour (at _____ hours): $________________

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OPERATING COSTS (Variable):

Fuel:
  Consumption: _____ gal/hour
  Price: $_____ /gal
  Cost per hour: $________________

Maintenance:
  Scheduled maintenance: $_______ /year
  Per hour: $________________

Repairs (historical average):
  Annual repairs: $_______
  Per hour: $________________

Tires/tracks/wear items:
  Annual cost: $_______
  Per hour: $________________

Operator (if included in rate):
  Hourly rate (loaded): $________________

TOTAL OPERATING/HOUR: $________________

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TOTAL COST PER HOUR:
  Ownership: $_______ /hour
  Operating: $_______ /hour
  TOTAL: $_______ /hour

================================================================

Hourly Rate Calculation

Standard Rate Calculation:

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         EQUIPMENT RATE CALCULATION
================================================================

Equipment ID: _______  Description: _________________________

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OWNERSHIP COSTS (Annualized):

| Item | Annual Cost | Notes |
|------|-------------|-------|
| Depreciation | $ | Straight-line or accelerated |
| Interest/opportunity cost | $ | Actual or imputed |
| Insurance | $ | Equipment floater |
| Property tax | $ | If applicable |
| Storage | $ | Allocated yard cost |
| Licenses/registration | $ | Annual fees |

TOTAL OWNERSHIP: $____________/year

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OPERATING COSTS (Per Hour):

| Item | Cost/Hour | Notes |
|------|-----------|-------|
| Fuel | $ | Based on consumption |
| Lubricants | $ | Typically 15% of fuel |
| Maintenance | $ | Scheduled |
| Repairs | $ | Historical average |
| Tires/tracks | $ | Prorated |

TOTAL OPERATING: $____________/hour

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RATE CALCULATION:

Expected annual hours: _____________

Ownership rate: $____________/year ÷ ____________ hours = $______/hour
Operating rate: $____________/hour
---------------------------------
INTERNAL RATE: $____________/hour

Markup for external billing: _____%
EXTERNAL BILLING RATE: $____________/hour

================================================================

Utilization Impact:

Annual Hours	Ownership/Hour	Operating/Hour	Total/Hour
500 (low)
1,000 (typical)
1,500 (high)
2,000 (very high)

Key Insight: Lower utilization = higher cost per hour. Underutilized equipment is expensive.

Lease vs. Buy Analysis

Decision Framework:

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         LEASE VS. BUY ANALYSIS
================================================================

Equipment: _______________________________________________
Need duration: ____________ months/years
Expected usage: ____________ hours/year

================================================================

OPTION 1: PURCHASE

Purchase price: $________________
Down payment: $________________
Financed amount: $________________
Term: _____ months
Interest rate: _____%
Monthly payment: $________________

Total payments: $________________
Salvage value (end of use): $________________
Net purchase cost: $________________

Tax benefits:
  Depreciation deduction value: $________________
  Interest deduction value: $________________
  Total tax benefit: $________________

NET COST TO PURCHASE: $________________

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OPTION 2: LEASE

Monthly lease payment: $________________
Lease term: _____ months
Total lease payments: $________________
Buyout at end (if any): $________________
Total lease cost: $________________

Tax benefit (deductible payments): $________________

NET COST TO LEASE: $________________

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OPTION 3: RENT (Short-term)

Daily rate: $________________  Weekly: $________________  Monthly: $________________

Expected rental period: _____________
Total rental cost: $________________

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COMPARISON:

| Factor | Purchase | Lease | Rent |
|--------|----------|-------|------|
| Total cost | $ | $ | $ |
| Monthly cash outflow | $ | $ | $ |
| Down payment required | $ | $ | $0 |
| Ownership at end | Yes | Maybe | No |
| Tax benefits | Depreciation | Deductible | Deductible |
| Flexibility | Low | Medium | High |
| Off-balance sheet | No | Maybe | Yes |

RECOMMENDATION: ☐ Purchase  ☐ Lease  ☐ Rent

Rationale:
___________________________________________________________

================================================================

Decision Guidelines:

Scenario	Likely Best Option
Long-term need (5+ years), high utilization	Buy
Medium-term need (2-4 years), moderate use	Lease
Short-term/project-specific need	Rent
Specialized/rapidly changing technology	Lease or rent
Cash constrained	Lease
Maximize tax benefits now	Buy (bonus depreciation)
Uncertain project pipeline	Rent

Utilization Tracking

Monthly Equipment Report:

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         EQUIPMENT UTILIZATION REPORT
================================================================

Month: _______________

| Equip ID | Description | Hours Used | Hours Avail | Util % | Jobs |
|----------|-------------|------------|-------------|--------|------|
|          |             |            |             |        |      |
|          |             |            |             |        |      |
|          |             |            |             |        |      |

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FLEET SUMMARY:

Total equipment pieces: _____
Average utilization: _____%
Underutilized (under 50%): _____
At capacity (over 90%): _____

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ANALYSIS:

Equipment consistently underutilized:
| Equipment | Avg Utilization | Action |
|-----------|-----------------|--------|
|           |                 | ☐ Sell ☐ Rent out ☐ Keep |

Equipment at capacity:
| Equipment | Demand | Action |
|-----------|--------|--------|
|           |        | ☐ Add unit ☐ Rent supplement |

================================================================

Utilization Benchmarks:

Utilization	Status	Action
over 80%	Optimal	Monitor capacity
60-80%	Acceptable	Normal operations
40-60%	Below target	Evaluate need
under 40%	Underutilized	Consider selling/disposing

Job Costing for Equipment

Charging Jobs:

Internal Equipment Charges:

Hours used on job × Internal rate = Equipment cost charged

Example:
Excavator: 40 hours × $85/hour = $3,400 charged to job

Why This Matters:

Accurate job profitability
Consistent bidding
Equipment cost recovery
Performance measurement

Equipment Charge Log:

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         EQUIPMENT USAGE LOG
================================================================

Project: _______________________  Week of: _______________

| Date | Equipment | Operator | Hours | Rate | Total |
|------|-----------|----------|-------|------|-------|
|      |           |          |       |      |       |
|      |           |          |       |      |       |

WEEKLY TOTAL: $________________

================================================================

Maintenance Cost Tracking

Equipment Maintenance Record:

================================================================
         EQUIPMENT MAINTENANCE LOG
================================================================

Equipment ID: _______  Description: _________________________
Year purchased: _____  Purchase price: $________________

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SERVICE HISTORY:

| Date | Type | Description | Cost | Hours at Service |
|------|------|-------------|------|------------------|
|      | ☐ PM ☐ Repair |      |      |
|      | ☐ PM ☐ Repair |      |      |
|      | ☐ PM ☐ Repair |      |      |

YTD Maintenance: $________________
YTD Repairs: $________________
Total YTD: $________________

Cost per hour (YTD): $________________ (at _____ hours)

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LIFECYCLE COST TRACKING:

| Year | Hours | Maintenance | Repairs | Total | Cost/Hour |
|------|-------|-------------|---------|-------|-----------|
| Year 1 |     |             |         |       |           |
| Year 2 |     |             |         |       |           |
| Year 3 |     |             |         |       |           |

Cumulative: _____ hours, $____________ total, $______/hour

================================================================

Maintenance Benchmarks:

Equipment Type	Target Cost/Hour	Action Threshold
Excavators	$8-12	over $15 evaluate
Loaders	$6-10	over $12 evaluate
Trucks	$4-8	over $10 evaluate
Small equipment	$2-5	over $7 evaluate

Replacement Analysis

When to Replace:

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         EQUIPMENT REPLACEMENT ANALYSIS
================================================================

Equipment: _______________________  Age: _____ years
Current hours: _____  Estimated remaining life: _____ hours

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KEEP OPTION:

Current value (FMV): $________________
Remaining depreciation: $________________

Expected costs next 2 years:
  Maintenance: $________________
  Repairs: $________________
  Downtime cost: $________________
Total: $________________

Value at end of 2 years: $________________

Net cost to keep: $________________

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REPLACE OPTION:

New equipment cost: $________________
Trade-in/sale value: $________________
Net acquisition cost: $________________

Expected costs next 2 years:
  Maintenance: $________________
  Repairs: $________________
Total: $________________

Net cost to replace: $________________

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COMPARISON:

Keep cost: $________________
Replace cost: $________________
Advantage: ☐ Keep ($______)  ☐ Replace ($______)

Qualitative factors:
☐ Reliability concerns
☐ Technology improvements
☐ Fuel efficiency
☐ Safety features
☐ Warranty coverage
☐ Customer perception

RECOMMENDATION: ☐ Keep  ☐ Replace

================================================================

Replacement Triggers:

Trigger	Description
Economic	Repair costs exceed value or replacement is cheaper
Reliability	Frequent breakdowns affecting operations
Technology	New equipment significantly more productive
Safety	Equipment no longer meets safety standards
Compliance	Emissions or other regulatory requirements

Fleet Optimization

Annual Fleet Review:

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         ANNUAL FLEET REVIEW
================================================================

Year: _______

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FLEET SUMMARY:

| Category | Count | Avg Age | Avg Utilization | Total Value |
|----------|-------|---------|-----------------|-------------|
| Heavy equipment | | | | |
| Trucks | | | | |
| Trailers | | | | |
| Small equipment | | | | |
| Vehicles | | | | |
| TOTAL | | | | |

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ACTIONS:

Sell/dispose:
| Equipment | Reason | Est. Value |
|-----------|--------|------------|
|           |        |            |

Purchase:
| Equipment | Reason | Est. Cost |
|-----------|--------|-----------|
|           |        |           |

Net fleet change: $________________

================================================================

Tax Considerations

Depreciation Options:

Method	Description	Best For
Bonus depreciation	60% first year (2026)	High-profit years
Section 179	Expense up to limit	Smaller purchases
MACRS	Standard schedule	Normal operations

Tax Planning:

Time purchases for maximum benefit
Consider entity structure
Coordinate with CPA
Monitor phase-out schedules

Job Costing Procedures
Capital Budget
Asset Management
Tax Planning

Template provided by support.construction. Know what your equipment really costs—then charge accordingly.

Purpose​

Why Equipment Cost Analysis Matters​

Equipment Decisions Impact:​

Without Analysis:​

Equipment Cost Components​

Total Cost of Ownership (TCO):​

Hourly Rate Calculation​

Standard Rate Calculation:​

Utilization Impact:​

Lease vs. Buy Analysis​

Decision Framework:​

Decision Guidelines:​

Utilization Tracking​

Monthly Equipment Report:​

Utilization Benchmarks:​

Job Costing for Equipment​

Charging Jobs:​

Equipment Charge Log:​

Maintenance Cost Tracking​

Equipment Maintenance Record:​

Maintenance Benchmarks:​

Replacement Analysis​

When to Replace:​

Replacement Triggers:​

Fleet Optimization​

Annual Fleet Review:​

Tax Considerations​

Depreciation Options:​

Tax Planning:​

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