CEC Construction Equipment Costs & Ownership 1 — Questions and Answers
Question 1: Which method of determining equipment ownership cost accounts for the purchase price, salvage value, and useful life of a machine?
- Straight-line depreciation (Correct answer)
- Sum-of-years-digits depreciation
- Double declining balance depreciation
- Unit-of-production depreciation
Correct answer: Straight-line depreciation
Straight-line depreciation spreads the cost evenly over the useful life by subtracting salvage value from purchase price and dividing by the number of years, making it the most common method for estimating ownership cost.
Question 2: The hourly ownership cost of a piece of construction equipment is primarily based on which of the following?
- Fuel consumption and operator wages
- Depreciation, interest, taxes, and insurance (Correct answer)
- Maintenance and repair costs only
- Rental market rates in the project region
Correct answer: Depreciation, interest, taxes, and insurance
Hourly ownership cost is calculated from depreciation, the cost of invested capital (interest), taxes, and insurance — collectively known as DITI costs.
Question 3: What does the term 'economic life' of construction equipment refer to?
- The period covered by the manufacturer's warranty
- The time until the machine requires a major overhaul
- The period during which it is most cost-effective to own and operate the machine (Correct answer)
- The maximum physical lifespan before total mechanical failure
Correct answer: The period during which it is most cost-effective to own and operate the machine
Economic life is the period during which owning and operating the equipment is more cost-effective than replacing it; beyond this point, rising repair costs outweigh the value of continued use.
Question 4: An estimator calculates the 'operating cost' of a bulldozer. Which of the following is included in operating cost but NOT in ownership cost?
- Insurance premiums
- Depreciation
- Fuel and lubricants (Correct answer)
- Interest on investment
Correct answer: Fuel and lubricants
Fuel and lubricants are variable operating costs that only occur when the machine is running, whereas insurance, depreciation, and interest are fixed ownership costs incurred regardless of machine use.
Question 5: When renting equipment for a short-duration task, which cost is typically avoided compared to owning the same piece of equipment?
- Operator labor costs
- Fuel costs
- Ownership depreciation and capital cost (Correct answer)
- Transportation to the job site
Correct answer: Ownership depreciation and capital cost
Renting eliminates the ownership costs of depreciation and capital investment, making it financially advantageous for short-term or infrequent equipment needs.
Question 6: The Contractors Equipment Cost Index (CECI) is primarily used by estimators to:
- Determine the resale value of used equipment
- Adjust historical equipment costs to current price levels (Correct answer)
- Compare equipment rental rates between vendors
- Calculate fuel surcharges for heavy machinery
Correct answer: Adjust historical equipment costs to current price levels
The CECI adjusts historical equipment cost data to reflect current price levels, allowing estimators to update older cost figures for use in current project estimates.
Question 7: A crane has a purchase price of $500,000, an estimated salvage value of $50,000, and a useful life of 10 years. What is its annual straight-line depreciation?
- $50,000
- $45,000 (Correct answer)
- $55,000
- $500,000
Correct answer: $45,000
Annual straight-line depreciation = (Purchase Price − Salvage Value) ÷ Useful Life = ($500,000 − $50,000) ÷ 10 = $45,000 per year.
CEC Construction Equipment Costs & Ownership 1
Which method of determining equipment ownership cost accounts for the purchase price, salvage value, and useful life of a machine?