CEC Construction Equipment Costs & Ownership 2 — Questions and Answers
Question 1: Which of the following best describes the 'standby rate' for rented construction equipment?
- The full rental rate charged when equipment is actively working
- A reduced rate charged when equipment is on-site but not operating (Correct answer)
- The rate charged for transporting equipment to a new job site
- A penalty rate for equipment returned after the rental period
Correct answer: A reduced rate charged when equipment is on-site but not operating
A standby rate is a reduced charge applied when rented equipment is on-site and available but not actively being used, compensating the owner for holding the machine idle.
Question 2: The 'ownership and operating (O&O) cost' method for pricing equipment use is most closely associated with which reference publication?
- RSMeans Building Construction Cost Data
- Associated General Contractors (AGC) Manual
- Caterpillar Performance Handbook (Correct answer)
- ENR Construction Cost Index
Correct answer: Caterpillar Performance Handbook
The Caterpillar Performance Handbook is widely recognized as a primary reference for calculating ownership and operating costs of heavy construction equipment.
Question 3: When estimating equipment costs for a project in a remote location, which additional cost factor is most important to include?
- Manufacturer extended warranty costs
- Mobilization and demobilization costs (Correct answer)
- Reduced fuel consumption due to lower traffic
- Decreased operator wages in rural areas
Correct answer: Mobilization and demobilization costs
Remote locations require transporting equipment to and from the site, making mobilization and demobilization a significant and often overlooked cost that must be included in the estimate.
Question 4: Which factor most directly affects the hourly fuel cost estimate for a piece of heavy equipment?
- The equipment's purchase price and age
- The engine horsepower and load factor (Correct answer)
- The operator's experience and skill level
- The manufacturer's recommended service intervals
Correct answer: The engine horsepower and load factor
Fuel consumption is directly proportional to engine horsepower and the load factor (the percentage of maximum power the engine uses), making these the primary drivers of hourly fuel cost.
Question 5: An estimator is comparing owning versus renting a concrete pump for a project. If the breakeven point is 1,200 hours per year, what should the estimator recommend if annual usage is projected at 800 hours?
- Purchase the pump because it provides better control
- Rent the pump because usage is below the breakeven point (Correct answer)
- Purchase the pump because maintenance costs will be lower
- Rent the pump only for the first year, then purchase
Correct answer: Rent the pump because usage is below the breakeven point
When projected usage falls below the breakeven point, renting is more cost-effective than owning because ownership costs are not fully recovered over the limited hours of use.
Question 6: Which of the following is NOT typically included when calculating the 'cost of investment' component of equipment ownership cost?
- Interest rate on borrowed capital
- Opportunity cost of equity investment
- Average book value of the equipment
- Daily fuel cost while operating (Correct answer)
Correct answer: Daily fuel cost while operating
Daily fuel cost is an operating cost, not an ownership cost; investment cost components include interest on borrowed or equity capital applied to the equipment's average book value.
Question 7: The average investment method for calculating equipment interest cost uses which value as its base?
- The full purchase price of the equipment
- The current replacement cost of equivalent equipment
- The average of the initial cost and salvage value (Correct answer)
- The remaining book value at the time of estimate
Correct answer: The average of the initial cost and salvage value
The average investment method uses the average of the initial purchase price and salvage value as the base for calculating interest cost, reflecting the average capital tied up over the equipment's life.
CEC Construction Equipment Costs & Ownership 2
Which of the following best describes the 'standby rate' for rented construction equipment?