How to Calculate Operating Costs
Operating Costs (also called variable costs) include repairs and maintenance, fuel, lubrication, and operator labor.
Repairs and Maintenance. Figure 1 shows how repair costs accumulate for two-wheel drive tractors. The slope of the curve increases as the number of hours of use increases.
Because our sample tractor is used about 400 hours per year, by the end of its 15-year economic life, it’ll accumulate about 6,000 hours of operation.
Using this chart, total accumulated repair costs will be equal to about 25% of the new list price. So, total accumulated repairs can be estimated to be:
Accumulated repairs = 0.25 x $80,000, or $20,000
Translating that to cost per hour is easy: Divide the accumulated repairs cost by the total life hours. $20,000 / 6,000 hours, which is $3.33/hour.
Fuel. Average fuel consumption (in gallons per hour) for farm tractors on a year-round basis without reference to any specific implement can also be estimated with these equations:
0.060 x maximum PTO horsepower for gasoline engines
0.044 x maximum PTO horsepower for diesel engines
Here’s how that calculates out for our 105-horsepower diesel tractor example:
Average diesel fuel consumption = 0.044 x 105 horsepower, or 4.62 gallons/hour
Average fuel cost per hour = 4.62 gallons/hour x $3.40/gallon, or $15.71/hour
Lubrication. Surveys indicate that total lubrication costs on most farms average about 15% of fuel costs. Therefore, once the fuel cost per hour has been estimated, you can multiply it by 0.15 to estimate total lubrication costs. For our tractor example, average fuel cost was $15.71 per hour, so average lubrication cost would be:
Lubrication = 0.15 x $15.71, or $2.36/hour
Labor. Actual hours of labor usually exceed field time by 10% to 20%, because of travel and the time required to lubricate and service tractors. Consequently, labor costs can be estimated by multiplying the labor wage rate times 1.1 or 1.2.
Using a labor value of $15 per hour for our tractor example:
Labor cost per hour = $15 x 1.1= $16.50
Total Operating Cost
Take each of these costs per hour and add them together for your total operation cost.
Total operating cost = $3.33 + $15.71 + $2.36 + $16.50, or $37.90 per hour
After all costs have been estimated, the total ownership cost per hour can be added to the operating cost per hour to calculate total cost per hour to own and operate the machine. Total cost per hour for our example tractor was:
Total cost = $20.11 + $37.90 = $58.01 per hour
So the total cost for owning and operating your tractor will be $23,204 per year, based on 400 hours of use.