University for Development Studies

School Of Engineering
Department Of Agricultural Engineering
Course: Farm Power and Machinery II
COURSE CODE: DAE 469
CREDIT HOURS: 2
LECTURER: Ing. ABDUL-RAZAK OSMAN
ESTIMATING FARM POWER & MACHINERY COSTS
Farm power, machinery and equipment are major cost items in agriculture. Larger
machines, new technology, higher prices for parts and new machinery, and higher energy prices
have caused machinery and power costs to rise in recent years. However, good managers can
control machinery and power costs per hectare. Making smart decisions about how to acquire
machinery, when to trade, and how much capacity to invest in can reduce machinery costs by as
much as Rs 10000 per hectare. All of these decisions require accurate estimates of the costs of
owning and operating farm machinery.
Machinery Costs
Farm machinery costs can be divided into two categories: (i) annual ownership costs i.e. Fixed
cost, which occur regardless of machine use, and (ii) operating costs, which vary directly with
the amount of machine use. The true value of some of these costs is not known until the machine
is sold or worn out. But the costs can be estimated by making a few assumptions about machine
life, annual use, and fuel and labour prices.
1. Ownership costs (also called fixed costs) include depreciation, interest (opportunity
cost), taxes, insurance, and housing facilities.
Depreciation
Depreciation is a cost resulting from wear, obsolescence, and age of a machine. The degree of
mechanical wear may cause the value of a particular machine to be somewhat above or below the
average value for similar machines when it is traded or sold. The introduction of new technology
or a major design change may make an older machine suddenly obsolete, causing a sharp decline
in its remaining value. But age and accumulated hours of use usually are the most important
factors in determining the remaining value of a machine. Before an estimate of annual
depreciation can be calculated, an economic life for the machine and a salvage value at the end
of the economic life must be specified. The economic life of a machine is the number of years for
which costs are to be estimated. It often is less than the machine’s service life because most
farmers trade a machine for a different one before it is completely worn out. A good rule of
thumb is to use an economic life (Age) of 10 to 12 years for most new farm machines and a 15-

FPM II DAE 469 LECTURE 3

year life for tractors, unless it is known that the machine will be traded sooner. Salvage value
(SV) is 10 % purchase price (PP) of the machine.
purchase price ( PP ) −salvage value(SV )
Depreciation=
Age
Interest
If the operator borrows money to buy a machine, the lender will determine the interest rate to
charge. But if the farmer uses his or her own capital, the rate will depend on the opportunity cost
for that capital elsewhere in the farm business. If only part of the money is borrowed, an average
of the two rates should be used. For the example we will assume an average interest rate (i) of 8-
10 percent.
purchase price ( PP )+ salvage value(SV ) Interest rate (i)
Interest = ×
2 100
Taxes and Insurance
This cost usually is much smaller than depreciation and interest, but they need to be considered.
A cost estimate equal to 1.0 percent of the purchase price often is used. Housing Providing
shelter, tools, and maintenance equipment for machinery will result in fewer repairs in the field
and less deterioration of mechanical parts and appearance from weathering. That should produce
greater reliability in the field and a higher trade-in value. An estimated charge of 1.0 percent of
the purchase price is suggested for housing costs.
Total Ownership Cost (Fixed Cost) The estimated costs of depreciation, interest, taxes,
insurance, and housing are added together to find the total ownership cost. If the
tractor/Machinery is used 500 hours per year, the total ownership cost per hour is: Ownership
cost/use hours per year.
2. Operating costs (also called variable costs) include repairs and maintenance, fuel,
lubrication, and operator labour.
Repairs and Maintenance
Repair costs occur because of routine maintenance, wear and tear, and accidents. Repair costs for
a particular type of machine vary widely from one geographic region to another because of soil
type, rocks, terrain, climate, and other conditions. Within a local area, repair costs vary from
farm to farm because of different management policies and operator skill. The best data for
estimating repair costs are the operator’s own records of past repair expenses. Good records
indicate whether a machine has had above or below average repair costs and when major
overhauls may be needed. They also will provide information about the operator’s maintenance
program and mechanical ability. Without such data, repair costs must be estimated 5-8 percent of
purchase price of tractor/power tiller per year.

FPM II DAE 469 LECTURE 3

Fuel costs can be estimated by using average fuel consumption for field operations in liters per
hour. Those figures can be multiplied by the fuel cost per litre to calculate the average fuel cost
per hour/hectare.
Lubrication
Surveys indicate that total lubrication costs on most farms average about 15 percent of fuel costs.
Therefore, once the fuel cost per hour has been estimated, it can be multiplied by 0.15 to estimate
total lubrication costs.
Labour
Because different size machines require different quantities of labour to accomplish such tasks as
planting or harvesting, it is important to consider labour costs in machinery analysis. Labour cost
also is an important consideration in comparing ownership to custom hiring. Actual hours of
labour usually exceed field machine time by 10 to 20 percent, because of travel time and the time
required to lubricate and service machines. Consequently, labour costs can be estimated by
multiplying the labour wage rate times 1.1 or 1.2. Using a labour value of GHȻ 50.00 per hour
for our tractor. Different wage rates can be used for operations requiring different levels of
operator skill.
Total Operating/Variable cost
Cost Repair, fuel, lubrication, and labor costs are added to calculate total operating cost.
Total Cost
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.
Implement Costs
Costs for implements or attachments that depend on tractor power are estimated in the same way
as for the example tractor, except that there are no fuel, lubrication, or labor costs involved.
Working examples
1. The cost price of a 15 horse power diesel power tiller is GHȻ 150,000. An economic life of
10 years is assumed, and the tiller is expected to be used 500 hours per year. Assumption
• Salvage value (SV): 10%
• Interest rate: 10 %
• Insurance & taxes: 1% of PP
• Housing: 1 % of PP
• Fuel consumption: 1lit/hour
• Fuel Cost = GHȻ 50 per lit

FPM II DAE 469 LECTURE 3

 • Lubrication cost: GHȻ 150 per lit
• Lubrication consumption: 5% of fuel
• Repair and Maintenance: 5-8 %
• Labour: GHȻ 50 per hour
• Annual use of power tiller: >600 hour
• Custom hiring: GHȻ 400 per hour

Solution: The total cost can be calculated as:

Fixed cost:
PP−SV 150000−15000
a. Depreciation= = =GHȻ 13500 per year
Age 10

150000+15000 10
b. Interest = × =GHȻ 8250 per year
2 100

1
c. Insurance∧taxes=1 % of PP= ×150000=GHȻ 1500 per year
100

1
d. Housing=1 % of PP= × 150000=GHȻ 1500 per year
100
Total ¿ cost=13500+8250+1500+ 1500=GHȻ 24750 per year
Total ¿ cost per hour=GHȻ 49.5
1. Operating cost
a.
5 7500
Repair∧maintenance=5 % of PP= ×150000=GHȻ 7500 per year . per hour= =GHȻ 15.00
100 500
1lit
b. fuel=fuel cost × fuel consumption=GHȻ 50 per lit × =GHȻ 50 per year
hour
c.
5
Lubrication=lubrication cost ×lubrication consumpion ( 5 % of fuel cost )=GHȻ 150 per lit × ×1 lit pe
100
d. Labour cost=GHȻ 50 per hour
Total operating cost=15+ 50+7.5+50=GHȻ 122.5 per hour
Total cost=49.5+ 122.50=GHȻ 172.00 per hour

FPM II DAE 469 LECTURE 3

 ¿ cost per year
Annual use of power tiller per hour=
custom hiring per hour −operating cost per hour

247500
e. cost of annual use per hour= =GHȻ 89.10
400−122.5
ECONOMICS OF FARM MACHINERY
Annual use of power tiller >600
Profit ¿ the entrepreneur /farmer
Total expenditure=total cost ×annual use=172 ×600=GHȻ 102000
Total income=custom hiring × annualuse=400 ×600=GHȻ 240000
Net annual income=240000−102000=GHȻ 138000

2. The cost price of a 50 horse power diesel tractor is GHȻ 450,000. An economic life of 10
years is assumed, and the tiller is expected to be used 500 hours per year. Assumption
• Salvage value (SV): 10%
• Interest rate: 10 %
• Insurance & taxes: 1% of PP
• Housing: 1 % of PP
• Fuel consumption: 1lit/hour
• Fuel Cost = GHȻ 150 per lit
• Lubrication cost: GHȻ 250 per lit
• Lubrication consumption: 5% of fuel
• Repair and Maintenance: 5 %
• Labour: GHȻ 150 per hour
• Annual use of power tiller: >800 hour
• Custom hiring: GHȻ 700 per hour
Calculate:
I. The fixed cost
II. The operating cost
III. Toal cost
IV. Net annual income of an entrepreneur who owns the tractor

FPM II DAE 469 LECTURE 3

Solution: The total cost can be calculated as:
Fixed cost:
PP−SV 450000−45000
a. Depreciation= = =GHȻ 40500 per year
Age 10

450000+45000 10
b. Interest = × =GHȻ 2 4 ,7 50 per year
2 100

1
c. Insurance∧taxes=1 % of PP= ×450000=GHȻ 4500 per year
100

1
d. Housing=1 % of PP= × 450000=GHȻ 4500 per year
100
Total ¿ cost=40500+ 2 47 50+4500+ 4500=GHȻ 74 , 2 50 per year
Total ¿ cost per hour=GHȻ 1 48 .5
I. Operating cost
a.
5 7500
Repair∧maintenance=5 % of PP= × 450000=GHȻ 22500 per year . per hour= =GHȻ 45.00
100 500
1lit
b. fuel=fuel cost × fuel consumption=GHȻ 150 per lit × =GHȻ 150 per hour
hour
c.
5
Lubrication=lubrication cost ×lubrication consumpion ( 5 % of fuel cost )=GHȻ 250 per lit × ×1 lit pe
100
d. Labour cost=GHȻ 1 50 per hour
Total operating cost=45+150+12.5+150=GHȻ 357.5 per hour
II. Total cost=1 48.5+357.5=GHȻ 50 6.00 per hour

III. Annual use of power tiller >800

Profit ¿ the entrepreneur /farmer
Total expenditure=total cost ×annual use=5 06 × 800=GHȻ 4048 00
Total income=custom hiring × annualuse=700 × 800=GHȻ 560000
Net annual income=560000−4048 00=GHȻ 155 200

FPM II DAE 469 LECTURE 3

 Problem : The initial cost of 35 hp Massy Ferguson Tractor owned by a farmer is Ghc 300,000.
The tractor is expected to work for 10 years. In a year the farmer uses the tractor for 1000 hours.
The farmer also owns a 11 tined cultivator. The tines are spaced at 20 cm apart. The cost of the
cultivator is Ghc 12,000. The tractor consumes 3 liters/hour of diesel while ploughing with the
cultivator and the cost of fuel was Ghc 45.00/lit. The life of the cultivator is 10 years. The farmer
uses the cultivator for 400 hours in a year. The cultivator is operated at a speed of 4 km/h. if the
interest is 14%, Calculate the cost of ploughing 2 ha of land with the cultivator. Labour cost is
Ghc 240/day.
Assumption
• Salvage value (SV): 10%
• Housing, Insurance & taxes: 3% of PP
• Repair and Maintenance: 10 %
• Lubrication: 3 % of fuel cost

Solution
Calculating the cost of operation of tractor

Fixed cost:
PP−SV 300000−30000
e. Depreciation= = =GHȻ 27000 per year
Age 10

300000+30000 1 4
f. Interest = × =GHȻ 2 3 1 00 per year
2 100

3
g. Housing , Insurance∧taxes=3 % of PP= ×30 0000=GHȻ 9 0 00 per year
100

Total ¿ cost=270 00+2 3 10 0+ 9 0 00=GHȻ 5 910 0 per year

591 00
Total ¿ cost per hour= =G HȻ 59 . 1
1000

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 Operating cost
10 30000
Repair∧maintenance=10 % of PP= ×300000=GHȻ 30000 per year . per hour= =GHȻ 3
100 1000
3 lit
fuel=fuel cost × fuel consumption=GHȻ 45 per lit × =GHȻ 13 5 per hour
hour
3
Lubrication=( 3 % of fuel cost ) = ×135=GHȻ 40. 5 per hour
100
cost no of hours
Labour cost∨operator cost=no of workers × ÷
day day
Ghc 240 hours
operatot cost=1 person× ÷8 =GHȻ 30.00 /h
day day

Total operating cost=30+135+40.5+ 30=GHȻ 235 . 5 per hour

cost of operating tractor =total ¿ cost +total variable cost =59.1+ 235.5=GHȻ 2 9 4. 6 per hour
CALCULATING THE COST OF IMPLEMENT
Cost ofimplement ∨cultivator =GHȻ 12000
Annual use of cultivator per hour =4 00

Fixed cost:
PP−SV 12 000−1200
a. Depreciation= = =GHȻ 108 0 per year
Age 10

12 000+12 00 14
b. Interest = × =GHȻ 924 per year
2 100

3
c. Housing , Insurance∧taxes=3 % of PP= ×12000=GHȻ 36 0 per year
100

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 Total ¿ cost=108 0+924 +36 0=GHȻ 2367.00 per year
2367
Total ¿ cost per hour= =GHȻ 5 .9 2
4 00
Variable cost
a)
10 1200
Repair∧maintenance=10 % of PP= ×12000=GHȻ 1200 per year . per hour= =GHȻ 3.0 0
100 400
b) fuel=nil
c) Lubrication=nil
d) Labour cost∨operator cost=nil
Total variable cost=GHȻ 3.0 0 per hour
Total cost of cultivator∨implement=5.92+3=GHȻ 8 . 92
Cost of operating tractor∧implement=Tractor cost +implement cost
Cost of operating tractor∧implement=294.6+8.9=GHȻ 303 . 52 per hour

CALCULATING FIELD CAPACITY OF IMPLEMENT

Field capacity (FC)¿

10 ( )
Speed ( S)×width(W ) ha 2.2 × 4.0
h
=
10
=0.88
ha
h
1 1
Time required to complete 1 hectare of land¿ = =1.136 h /ha
field capacity 0.88
∴Cost of ploughing 1.0 hectare of land= No. of hours/ha time required (
hours GhȻ
¿ ×cost of ploghing( )=1.136 × 303.52=Ghc 344.80/ha
ha hours

FPM II DAE 469 LECTURE 3