Regardless of whether you already own or are planning to purchase a car, van, pickup truck, grain truck, semi or other type of motor vehicle, knowing the cost of owning and operating the vehicle is important for making business and personal decisions. Costs are usually computed on a "cost per year" or "per mile driven" basis. Show Operating CostsOperating costs are also called variable costs because they are only incurred if you operate the vehicle. These costs vary directly with the number of miles or hours driven and include fuel, tires, maintenance, and repairs. If the vehicle is being used in a business and you are hiring someone to operate the vehicle, operator labor may also be included. Fuel For an electric vehicle, the fuel equivalent would be electricity cost and can be calculated as the dollar per kilowatt-hour (kWh) divided by the vehicle efficiency or electricity used to travel 100 miles. Tires Maintenance and repairs Labor (optional) To compute labor cost per mile when it is paid by the hour, you must estimate the amount of driver time per mile. This can be done by dividing the labor cost per hour (wage) by the average speed of the vehicle. For example, a driver paid $15 per hour to drive a grain truck at an average speed of 50 miles per hour costs 30 cents per mile ($15 per hour / 50 mph = $.30 per mile). The actual number of hours an operator works is often more than the actual driving time. The operator may be involved in loading and unloading the truck, waiting in line, maintaining the vehicle or performing other duties. To take this into account, the number of hours can be expanded beyond the actual driving time. For example, if the operator spends a third of their time loading and unloading and only two-thirds of the time driving, the driving time needs to be expanded by a factor of 1.5 to account for the loading and unloading time. Total operating cost Ownership CostsOwnership costs (also called fixed costs) usually include depreciation, interest on borrowed money, license and insurance. In some situations you may want to include the cost of housing for the vehicle. , you may want to include the cost of operator labor if it is paid on a monthly or annual basis. Ownership costs are incurred regardless of the number of miles driven. For example, if the annual ownership cost of a car is $2,000 and you drive it 10,000 miles per year, the cost is 20 cents per mile ($2,000 / 10,000 = $.20). However, if you only drive it 5,000 miles per year, the cost is 40 cents per mile ($2,000 / 5,000 = $.40). Conversely, if you drive it 20,000 miles per year, the cost is only 10 cents per mile ($2,000 / 20,000 = $.10). So the more you drive the vehicle, the lower the ownership cost per mile. Depreciation Purchase price, years the vehicle will be owned and sale or salvage value of the motor vehicle need to be estimated. The ownership life of a vehicle is the number of years that you expect to own it. It is often less than the motor vehicle’s actual life because most people trade-in a motor vehicle before it is completely worn out. Sale or salvage value of the vehicle is what you expect it to be worth when you sell or trade it. A new pickup that costs $50,000 that you plan to own for 5 years and then sell for $20,000 will have an annual depreciation of $6,000 (($50,000 –$20,000) / 5 = $6,000). If the pickup is expected to have 12,000 miles of use per year, depreciation is 50 cents per mile ($3,000 / 12,000 = $.50). If you already own the vehicle and want to know what it is costing you to own and use it, estimate the vehicle’s current market value, the number of additional years you expect to own it, and its value at the end of the period. For example, if your car is worth $10,000 today, you expect to own it for another four years and you estimate its sale value at $5,000, depreciation is $1,250 per year (($10,000 - $5,000) / 4 = $1,250). If the car is expected to travel 10,000 miles per year, depreciation is 12.5 cents per mile ($1,250 / 10,000 = $.125). For vehicles that are leased, the lease payments will replace depreciation and interest. Interest For vehicles that are leased, the lease payments will replace interest and depreciation. License and insurance Labor (optional) If the operator is paid $40,000 per year, of which half of the time is devoted to driving the vehicle, and the annual mileage of the vehicle is 50,000 miles, the operator cost per mile is $.40 per mile ($40,000 / 2 = $20,000) ($20,000 / 50,000 = $.40). Total ownership cost Total costAfter all costs have been estimated, the total ownership cost per year can be added to the operating cost to calculate total cost to own and operate the machine. Cash Expenditures (optional)You may be interested in only the cash expenditures associated with driving the motor vehicle. All of the operating costs are also cash expenditures. In other words, you make a cash payment for them every year. The ownership costs are also cash expenditures, except for depreciation which is not included. Conversely, the principal payment on debt is included, although it is not actually a cost. Use Decision Tool A3-40, Motor Vehicle Cost Analyzer to calculate ownership and operating costs for a vehicle per mile and per year. Which of the following is an example of a variable cost for a manufacturer?Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees.
Which is an example of a variable cost for a vehicle?Operating Costs. Operating costs are also called variable costs because they are only incurred if you operate the vehicle. These costs vary directly with the number of miles or hours driven and include fuel, tires, maintenance, and repairs.
Which of the following is the example of variable cost?Examples of variable costs are sales commissions, direct labor costs, cost of raw materials used in production, and utility costs.
Which is a variable cost of owning an automobile?The fixed costs of owning a car include insurance, licensing, registration, and taxes, while the variable costs of owning a car include maintenance, repairs, and fuel. When taken together, these expenses create the total cost of vehicle ownership.
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