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Madison, WI 53726-2398
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Title: Machine Cost Analysis Using the Traditional Machine-Rate Method and ChargeOut!

Source: 2009 COFE Conference: Environmentally Sound Forest Operations 32nd Annual Meeting of the Council on Forest Engineering Lake Tahoe June 15-18, 2009

Author(s)Bilek, E.M. (Ted)

Publication Year: 2009  View PDF »

Category: Journal Articles
Associated Research Project(s):   FPL-4851-6A  FPL-4851-6A

Abstract: Forestry operations require ever more use of expensive capital equipment. Mechanization is frequently necessary to perform cost-effective and safe operations. Increased capital should mean more sophisticated capital costing methodologies. However the machine rate method, which is the costing methodology most frequently used, dates back to 1942. CHARGEOUT!, a recently introduced discounted cash flow methodology is compared with seven machine rate methods using data representing a skidder. I found that use of machine rate methods can lead to either over or under-estimates of machine owning and operating costs, depending on the machine rate model used. CHARGEOUT!'s calculated rate will provide a user-specified rate of return. The differences between the results calculated by the machine rate methods occur because of different implicit assumptions used within the models' formulas. The differences between CHARGEOUT! and the machine rate models occur largely because of the inability of the machine rate models to properly incorporate the time value of money. Whereas CHARGEOUT! can be sufficiently constrained so as to more-or-less replicate a machine rate calculation, doing so sacrifices much of CHARGEOUT!'s power and flexibility. Machine rate models cannot be configured to replicate CHARGEOUT!'s calculations. Machine rate models cannot be configured to calculate cash flows, allow for uneven costs or machine hours, incorporate loans that have a different life than the expected machine life, incorporate financing, or perform an after tax analysis. Machine rate models cannot calculate a costing rate that will provide a specified rate of return. CHARGEOUT! is a capital costing model that overcomes these limitations.

Keywords: Logging machinery; costs; data processing; industrial equipment; discounted cash flow; break-even analysis; cost effectiveness; mathematical models; mathematical statistics; forest machinery; ChargeOut rate; cash flow analysis; statistical analysis

Publication Review Process: Informally Refereed (Peer-Reviewed)

File size: 76 kb(s)

Date posted: 10/11/2010

This publication is also viewable on Treesearch:  view
RITS Product ID: 31266
Current FPL Scientist associated with this product
Bilek, Ted

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