Question 5 After reviewing all documents, the contractor has found that a mobile

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Question 5 After reviewing all documents, the contractor has found that a mobile crane is required for 2 years in this project. You are requested to give an advice whether your company should purchase the mobile crane. Compare the benctis beton cmne uchse and crane hre (10 marks) (b) Calculate the all-in operating rate per hour for purchasing and hiring the crane, based upon the following information:- (10 marks) Capital cost Hire rate Interest rate Maintenance cost Resale value after 3 years Insurance Plant Dept overhead Fuel Operator Working days Working hours HK$1,500,000 HK$2,000 per hour 6% 12% of fixed cost annually 750,000 1% 12% 10 liter 1,200 per day Monday to Saturday 8:00 am -6:00 pm (1 hour lunch) Note: Assumption should be made if necessary.]

Explanation / Answer

Hiring and purchasing the crane depends upon various factors-

1.) If you have a small project then hiring is better than purchasing

2.) If your project duration is more than 10 years then crane should be purchased than hire. If the project is between 2-10 years then renting a crane will save your money.

3.) If the need of crane is very frequent and requirement time of the crane is long during construction then it should be purchased.

4.) If your company is on expansion and you have a lot of projects in pipeline then buying is a better option.

5.) Cranes are also of many types , if you need more than 1 type of crane in your project then hiring is a better option.

(b). Operation rate per hour for purchasing -

Capital Cost - 1500000

Interest Rate - (6 × Capital Cost )÷ 100 =90000

Maintainence Cost - ( 12 × Capital Cost)÷100 = 180000

Insurance - (1× Capital Cost )÷100 = 15000

Plant Dept Overhead = (12 × Capital Cost)÷100= 180000

Total Working days = 365- 52(sunday) = 313 day

Fuel (assume 3 $ per litre) - 313 days × 10 lt × 3 $ = 9390 $

In purchasing Operator cost will not be taken into consideration as the company will have its own manpower to handle the crane.

Therefore total cost of crane a year = 1974390$

Now total hour the crane works a year = 313 days × 9 hours

= 2817 hr

So, operational cost of crane per hour = 1974390÷2817

= 700 $ per hour

Now , if we see the Crane Hiring case

Hire charges = 2000 $ per hour

Fuel = (10÷9) × 3$ = 3.33 $ per hour (We have assumed that 10lt fuel is consumed in a day)

Operator Charges = (1200 ÷ 9) = 133.33 $ per hour (working hr is 9)

So total Charges per hour = 2000+ 3.33+ 133.33

= 2136.66 $

So we can clearly see that Operating rate per hour for purchasing is 700 $ as compared to hiring rate which comes out to be 2136 $ .

In purchasing the initial capital is quite high as compared to hiring but it is beneficial in long run.

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