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Calculation of Overhead Costs for Lathe Machine

05/17/2013 5:41 AM

I have a lathe machine in my workshop which I have given on rent to a party. I want to calculate the machine overheads (Electricity, maintenance, depreciation etc) for the machine. The labour & material is the party's. But he is using my tooling & coolant.

Could you guide me to a basic calculation system to derive these overheads for this machine. even if you suggest some books or websites I will be grateful.

Thank You.

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Anonymous Poster #1
#1

Re: Calculation of overhead costs for lathe machine

05/17/2013 6:02 AM

You want Economics 101, Buddy. Down the hall, third door on the right. Have a nice day!

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#2

Re: Calculation of Overhead Costs for Lathe Machine

05/17/2013 9:01 AM

Not Economics, but Cost Accounting. Ask your accountant

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#6
In reply to #2

Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 2:46 AM

I dont have one.... I am running a small workshop dude.

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Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 12:16 PM

OK:

Basic course. Cost of Machine/expected life of machine= Cost per year. If the life expectancy is 10 yrs and it is 5 yrs old, then 1/2 the machine is used. This means if your friend destroys the machine you are out X. This has it's limitations as the machine is 1/2 used up, but a replacement may be 4X's the original cost, you are out far more than 1/2 the cost of the machine. If you rent the tool, and he breaks it, you are out the money. You went into the "rental" business, and must assume the risks. If you "lend" it to him and he breaks it, he may well replace it out of goodwill. However, you are risking your friendship as well as your means of lively hood. I don't think you can put a price on those. I would suggest you take your friend to the local tool rental and point him in the right direction.

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#3

Re: Calculation of Overhead Costs for Lathe Machine

05/17/2013 9:10 AM
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#4

Re: Calculation of Overhead Costs for Lathe Machine

05/17/2013 10:48 PM

I know this doesn't answer your question directly, but I would be very hesitant to rent my machine tools to anyone. How does one calculate the depreciation caused by damage not reported by the client? When you need the machine to perform at the limit of its capability and it fails to perform, it could take you a long time to determine and remedy the problem.

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#5
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Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 2:38 AM

I think you are having a trust issue.

The person I have rented the machine to is a close friend, I am not worried on that front.

Also the machine is 10 yrs old, so I am performing monthly maintenance checks on the machine.

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#7
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Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 8:07 AM

You bet I have a trust issue. My lathe is 73 years old and if a part broke I would have a tough time replacing it. My Monarch 10EE was built at the start of WWII and I wouldn't trust my best friend with it because he is not a machinist. It is a matter of trust - I don't think it's an issue.

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#9

Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 12:26 PM

This has tons of social, geographical, cultural and even local implications.

What I do in Arizona, USA, might be considered outrageous in Indian culture.

This is a agreement among friends, which adds a new dimension.

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#10

Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 12:41 PM

I stand corrected, this is not a case of Cost Accounting, but of Risk Analysis.

Are you willing to "risk" both your friendship and your lathe, in order to satisfy your desire to help your friend?

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#11

Re: Calculation of Overhead Costs for Lathe Machine

05/18/2013 6:10 PM

If he is a good friend ask for a share of his profits. He is machining something that will create a profit isn't he? Start with 60% of what he makes. Make sure you have enough drinks to go down to 15%. Which ever way he should whack it onto his end price for the customer. He does have an understanding of the running costs?

Make sure that he doesn't run the lathe into the ground and that, if this should happen, he replace it or the damaged parts. If you brake it you replace it. That's what good friends are for in my world.

Have one on me when you get to 20%, Ky.

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#12

Re: Calculation of Overhead Costs for Lathe Machine

05/21/2013 3:01 AM

Thank You all for contributing..... I have worked out a solution for the calculation of the machine hour rate.

Thanks, good day.

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