How to Calculate Farm Machinery Costs

Farm machinery is calculated by more that just the purchase price. Other things are taking into consideration when calculating the overall equipment costs such as, operational, repair, and depreciation. A farmer has to calculate both ownership and operating costs to correctly get the full economic benefit of the machinery.

Ownership Costs

1. Determine the purchase price of the machinery by adding the value of any trades to the purchase amount for the machinery.


2. Estimate the useful life of the machinery. Generally the life for farm machinery is approximately 12 years. Also, estimate the price the machinery could possibly sell for at the end of its useful like. This is known as the salvage value.


3. Determine the lifetime cost of the machine by subtracting the salvage value from the purchase price. Then, determine the annual cost of the machine by dividing this. This is ideally the amount of money the farm sets aside annually to fund the replacement machinery at the end of its life.

Operating Cost

1. Estimate the repair and maintenance costs for the life of the machinery. Include in this estimate, routine maintenance such as oil changes, in addition to estimating the repairs for any breakdowns that may occur.


2. Estimate fuel usage for the entire life of the machinery. Estimate all the hours the machinery is used during each season, and then multiply that times the hourly fuel consumption rate. Also, include and estimation for future fuel costs.


3. Add in all labor costs that is associated with the machinery. If the farmer performs his own work, this may not be a factor.


4. Estimate the annual cost of the operation of for the machinery by combining repair, fuel and labor costs. Determine the total annual cost of each piece of machinery by adding the annual ownership cost.