Machinery Cost Calculator

Ownership costs versus operating costs

Machinery cost splits into two piles that behave in opposite ways. Ownership costs arrive whether the machine moves or not: depreciation, interest on the money tied up, insurance, property tax and housing. Operating costs arrive per hour of use: fuel, lubrication, repairs and the operator's wage.

Farm-management budgets group the fixed side as DIRTI, for depreciation, interest, repairs, taxes and insurance. Repairs sit in both camps in practice. Routine service scales with hours, while a transmission rebuild is a capital event that lands in one year. This calculator treats repairs as an hourly cost, because that is how they average out over a machine's life.

The split matters when you decide whether to buy. A machine used 200 hours a year carries the same annual depreciation as one used 800 hours a year, so the low-use machine pays four times as much per hour for the same asset.

Depreciation: the largest line on most machines

Straight-line depreciation is the standard management estimate: purchase price minus salvage value, divided by years of life. An $85,000 tractor with 30% salvage keeps $25,500 of value at trade-in, so 85,000 - 25,500 = 59,500 dollars is used up over 10 years, which is $5,950 a year, or $11.90 an hour at 500 hours of annual use.

Lenders and tax rules use different schedules. A loan amortizes on a payment schedule that front-loads interest, and the IRS allows bonus depreciation and Section 179 expensing, which can push most of the deduction into year one. Neither changes the machine's real cost per hour; they change when the cost shows up. IRS Publication 946 covers the tax side, and it is worth reading before you let a tax schedule drive a purchase decision.

Salvage value is the input people get wrong. A 20 year old tractor with 8,000 hours still sells for 20% to 30% of its original price, while a specialty machine with no second buyer may be worth scrap. Check auction results for your model before you assume 40%.

The combine line explains why harvest equipment is priced per acre rather than per hour. At 300 hours a year, depreciation alone is $120 an hour, and the machine still has to be fueled, repaired and driven.

Interest, insurance, taxes and housing

Interest is the cost of the capital, whether you borrow it or not. If you pay cash, the interest line is what that cash would have earned elsewhere. The standard shortcut uses average investment, which is half of the purchase price plus salvage, because a loan balance and the machine's value both decline over time.

On the $85,000 example, average investment is (85,000 + 25,500) / 2 = 55,250. At 6.5% the interest is 55,250 x 0.065 = 3,591 dollars a year, or $7.18 an hour at 500 hours. A cash buyer with a 4% opportunity cost would use 4% and get $2,210 a year instead.

Insurance, property tax and housing usually run 1% to 2% of average value per year. Housing is the shed space the machine occupies, and $1 to $2 per square foot of storage per year is a fair allowance in most of the country. On this machine, 1.5% of $55,250 is $829 a year, or $1.66 an hour.

Two adjustments are worth making. Add 0.5% if the machine is stored outside, since weather raises both depreciation and repair costs. Drop the housing charge only if the shed is already built and would stand empty without the machine.

Fuel and lubrication

Diesel use tracks horsepower closely enough to estimate. The ASABE standard figure is 0.044 gallons per PTO horsepower-hour for diesel, 0.060 for gasoline and 0.08 for LP gas. A 130 horsepower tractor therefore burns 130 x 0.044 = 5.72 gallons an hour at full load, and 5.72 x 3.80 = $21.74 at $3.80 a gallon.

Light loads use less, but not in proportion. A tractor pulling at 40% of rated power burns roughly 55% of full-load fuel, because the engine still spins the pump, fan and alternator. Tillage and baling run near full load; loader work and hauling run at half load or less. Use a fuel figure from your own records when you have one, and the standard formula when you do not.

Lubrication, filters and grease add 10% to 15% of the fuel cost. Many budgets fold that into the fuel line instead of tracking it separately. Either way, it belongs in the hourly number.

Fuel prices move, so check a current weekly average before you build a budget. The EIA weekly on-highway diesel price is the number most extension budgets use.

Repairs and maintenance

Repair cost is estimated as a percentage of the list price for every 100 hours of use. The rate rises with machine complexity and age: a simple two-wheel-drive tractor runs about 0.84% per 100 hours, a four-wheel-drive tractor near 1.0%, a skid steer 1.2%, and a square baler 1.5% because of knotter and needle wear.

On an $85,000 machine at 1% per 100 hours, repairs are $850 per 100 hours, or $8.50 an hour. Over a 5,000 hour life that adds up to $42,500, which is half the purchase price. That is not a worst case; it is the normal shape of a repair curve.

Repairs do not arrive evenly. The first 1,000 hours are mostly filters, belts and tires. The next 2,000 hours bring hydraulics, clutches and bearings. After that come the big items: transmissions, final drives and engine work. A single rate per hour smooths that curve, which is why a reserve account matters more than a monthly budget line.

Use the table as a starting point and replace it with your own five-year average once you have one. A machine under warranty, or one you service yourself, will beat these numbers.

Labor and the cost per acre

Labor is the line that turns a machinery cost into an operating cost. A wage of $22 an hour is not the full cost: payroll taxes add 7.65%, and workers compensation, unemployment insurance and benefits add more. Multiply the wage by 1.25 to 1.4 to get the real hourly cost, or $27.50 to $30.80 on a $22 wage.

Cost per acre needs a field capacity number. The quick estimate is width in feet times speed in miles per hour, divided by 8.25, which gives acres per hour at 100% efficiency. A 30 foot implement at 5 mph covers 30 x 5 / 8.25 = 18.2 acres an hour in theory; at 85% field efficiency it covers 15.5 acres.

Then divide the hourly cost by acres per hour. At $59.60 an hour, the same machine costs $9.93 an acre at 6 acres an hour and $3.31 an acre at 18 acres an hour. That is why big fields favor big equipment and small fields do not.

Keep the per-acre figure separate from the per-hour figure when you compare quotes. A custom operator quotes per acre, a rental yard quotes per hour, and a dealer quotes a payment. Only the per-acre number lets you compare all three.

Worked example: own it or hire it?

Take the $85,000 machine from the top of this page: 10 year life, 30% salvage, 500 hours a year, 6.5% interest, 1.5% for insurance and housing, 2.2 gallons an hour at $3.80, repairs at 1% of list per 100 hours, and a $22 wage. Ownership comes to $10,370 a year and $20.74 an hour. Operating comes to $38.86 an hour. Total is $59.60 an hour, or $29,800 a year.

A rental yard charges $70 an hour for a comparable machine with the operator included. Owning saves $10.40 an hour at 500 hours, which is $5,200 a year. At 200 hours, ownership spreads to $51.85 an hour and the total rises to $90.71, so renting wins by $20.71 an hour.

The break-even point is fixed cost divided by the gap between the rental rate and the operating cost: 10,370 / (70.00 - 38.86) = 333 hours. Below 333 hours a year, renting is cheaper. Above it, owning is cheaper, before you count the convenience of having the machine in the yard.

Custom hire per acre is a different comparison. At 12 acres an hour and $28 an acre, the custom operator charges $336 for every hour your machine would run. That price makes sense for a combine that only works 100 hours a year, and rarely makes sense for a tractor you use every week.