In this guide 6 sections
Each machine gets its own cost account. Depreciation, fuel, repairs, tyres, insurance and operator time post to that unit, and an hourly rate is worked out by dividing the total by the meter hours. Jobs are then charged that rate for the hours the machine worked, so each job carries a real equipment cost beside its labour and materials.
One machine, one cost account
In a basic ledger, diesel is one line and repairs are another, so a company with twelve excavators cannot tell which one is expensive. Unit costing changes that.
Each machine gets an asset number, such as EX-04, and every purchase or invoice that relates to that machine carries the number. Fuel card lines, hydraulic hose invoices and tyre bills all land on EX-04 instead of a shared repairs account that hides which excavator is costing the most.
Short version: the number follows the cost. Always.
What posts to the unit
Some costs arrive from outside, like a fuel card statement, a supplier invoice for hydraulic hose or a workshop bill for a swing bearing. Others are calculated, such as monthly depreciation on each machine and insurance premiums spread evenly across the policy year, plus loan interest booked monthly.
Operator pay needs care. Some firms charge operator wages to the machine and others charge them to the job, so pick one rule and keep it, otherwise comparisons across years mean nothing.
Repairs should split into scheduled service, wear parts and breakdowns, since each tells a different story about the machine’s condition, from bucket tooth wear to a failed final drive.
- Depreciation by straight line or hours worked
- Fuel issued from tank or card
- Repair orders, parts and workshop labour
- Tyres, tracks and cutting edges
- Insurance, registration and finance interest
Turning cost into an hourly rate
Add the unit’s costs for a period, then divide by the hours on its meter for the same period, and the result is a cost per working hour.
A quiet machine costs more per hour. That is the signal an owner needs.
A separate standby rate can cover days when the machine sat on site waiting for the scaffolders, the electricians or a delayed concrete pour. Review both rates every quarter, because diesel prices, tyre costs and repair bills all drift between one annual budget cycle and the next.
Charging cost to jobs
Each day the site foreman records which unit worked on which job and for how many hours, on a timesheet or a tablet entry. The system multiplies those hours by the unit rate and posts the amount to the job as an equipment line, ready for the weekly cost report.
Job cost reports now carry equipment as its own line beside labour, materials and subcontractors, so the true margin of each paving or trenching job is visible. One roller can sink a paving job.
Internal charges make hire comparable. You can see whether your own excavator beats the rate quoted by the plant hire yard down the road, and when to sell it.
Common mistakes to avoid
The usual failure is thin data. Meter readings are skipped, fuel is drawn from the site tank without a unit number and repairs are booked to a general account, so no report can be trusted. Fix the entry points first.
A second failure is a rate set once and never revisited, while a third is a flat day rate charged for a roller that ran two hours.
Start with the five costliest machines. Add the rest once habits hold.
Unit cost posting sheet
A page listing one machine on each row and columns for asset number, period, meter hours, depreciation, fuel, repairs, tyres or tracks, insurance, operator and total. The last two columns hold the cost per working hour and the standby rate, and a second block lists job, hours worked and amount charged.
Open a blank worksheet to printQuestions owners ask
Is unit level costing the same as job costing?
No. Unit costing builds the cost of each machine, job costing then charges each job for the hours it used, and together they show the equipment cost of a job.
Do small contractors need it?
Anyone owning several machines gains from it. Even a spreadsheet with one tab per machine, filled in weekly from fuel slips and workshop invoices, shows which units lose money.
How should depreciation be calculated?
Use the method your accountant and local rules accept, since straight line is simple and hours worked suits a breaker or crusher with uneven use. Either way, post it to the unit.
What does software add?
It enforces the unit number at entry, pulls meter readings and fuel issues together and posts rates to jobs without anyone retyping figures at month end. That removes the monthly manual allocation.