Equipment Costing Equipment Costing
The Equipment Costing system performs the following functions:
•Maintains a file for each piece of equipment which contains the equipment description and licensing information, location, usage and billing rates, and accounts. Each file also contains income and cost tracking for as many as 100 cost items (i.e. maintenance, fuel, tires, etc.).
•Provides a system of entry for usage logs.
•Automatically posts all equipment usage to the appropriate General Ledger and Job Costing accounts.
•Produces equipment usage analysis reports which allow easier management of equipment.
•Compares actual equipment expenses and estimated expenses to determine whether proper rates are being charged. Maintains a full audit trail of all equipment usage. Using either screen or printed reports the system allows instantaneous access to information that can aid in evaluation of costs and profitability on an end-of-month, yearly or cumulative since purchase basis.
•Equipment Costing programs are fully integrated with the rest of the accounting system. Costs are accrued directly from the payables and payroll modules. Rental income can accrue from receivables billings. Job cost and overhead expense accounts may be directly charged for equipment usage.
Equipment Costing Overview
Equipment Costing is valuable to any organization operating more than just one or two pieces of equipment requiring maintenance, fuel, and/or repairs. The more general term Equipment Management encompasses equipment costing, equipment maintenance and often fixed-asset accounting.
There are two functions of the Equipment Costing module. First, tracking of actual costs on each piece of equipment. Second, the application of equipment expense (at estimated hourly rates) to each job.
Rental income can be tracked separately from pseudo-income billed to internal jobs. This can be valuable to companies who rent out equipment on a regular basis.
Entering New Equipment
When a new piece of equipment is entered, identification and class codes and cost categories must be assigned for tracking purposes. Throughout this manual these will be called the Equipment ID, Class Code, and Cost category (or cost code) respectively.
Equipment ID
The Equipment ID is used to identify a specific piece of equipment to the system. This ID number can be up to ten alpha-numeric characters.
Class Code
The Class Code groups similar types of equipment. Many of the equipment reports may be limited by Class Code. This makes it possible to obtain a report of only those pieces of equipment belonging to a specified class or range of classes. One to five characters may be used to specify a ‘Class Code.’ Common classes of equipment might be ‘HEAVY,’ ‘MEDIUM,’ ‘LIGHT,’ ‘TOOLS,’ ‘TRUCK,’ ‘GRADE’ etc. The actual designation is entirely arbitrary but should be designed to provide as much utility as possible.
Cost Category
One to four alphanumeric characters may be used to specify a ‘Cost Category.’ A dictionary of the various codes that will be common to multiple pieces of equipment should be designed and entered into the system before any equipment is entered into the ‘Master File.’ Either a strictly numeric coding scheme, an alphabetic coding scheme or some combination of the two may be used. The advantage of an alphabetic scheme is that it provides a better mnemonic reference and makes coding easier. On the other hand a numeric scheme makes it easier to group similar categories or ranges of like costs for subtotaling or report limiting. Examples of valid codes are: ‘FUEL,’ ‘R,’ ‘TIRES,’ ‘O-10,’ ‘7210,’ ‘PT,’ etc. Once the coding structure has been established, equipment may be entered into the system.
In order to enter the equipment into the ‘Master File,’ some basic identification information such as a description, vehicle ID number and license number should be available. In addition, other information which requires management analysis should be entered. The objective of management is to come up with an estimate of what each piece of equipment will cost on a per-hour (day, mile, etc.) basis so that equipment may be charged to jobs accordingly.
During the day-to-day operation of the system, actual costs are automatically tracked. Management should periodically compare the actual costs of job billings to see if the estimated hourly rate originally set up matches the actual expenses incurred on that piece of equipment.
Other information management that must be decided on includes the unit of usage and unit of billing (hourly, daily, per mile, etc.). Finally, the ‘Cost Categories’ that are to be tracked (fuel, repairs, labor, parts, lubricating materials, overhaul, etc.) must be assigned. All codes are selected from the previously entered ‘Equipment Code Dictionary.’ When a piece of equipment is added, two codes for tracking rental and internal income are automatically included. These ‘Category ID’ codes are ‘.R’ and ‘.I’ for ‘Rental’ and ‘Internal’ income respectively. If another type of income needs to be tracked for a piece of equipment, the new type may be set up as any other ‘Cost Category.’ These special income accounts will maintain a credit rather than a debit balance.
Accumulating Costs
During day-to-day operation of the system, costs for repair, fuel, maintenance, etc., are automatically transferred to Equipment Costing from Payroll, Accounts Payable, or General Ledger journal entries. No effort within the Equipment Costing section is necessary. The accounting system will automatically recognize whether Equipment Costing has been installed on the system and verify any equipment codes entered through any of the non-Equipment Costing modules.
Logging Internal Usage
There are two philosophies concerning how equipment usage should be recorded.
1) Employees could note equipment usage on employee time sheets. Payroll personnel could then record equipment usage from the time sheets. This procedure, on the surface, would seem to save redundant entries.
2) Each piece of equipment could have a time card in much the same way as an employee has a time card. In this case, the equipment time cards would be gathered (weekly, biweekly, etc.) for entry into the system.
Option #1 above seems most popular, yet it has some major drawbacks. The procedure allows for no audit trail of equipment usage. Personnel could use a truck, a back hoe or any other piece of equipment on a sideline project (if they could get away with it) for hours, days, or more without any control. Option #2 would allow space for recording hour-meter readings to be included on the equipment usage log. Option #2 would also allow room for comments (maintenance notes, safety problems, etc.) to be noted in accordance with good business practice and federal and state regulations and laws.
The software developer suggests the use of Option #2, which is more compatible with Equipment Costing.
All internal usage is entered through the usage log system. This is very versatile and allows adjustment of hourly rates, automatic calculation of usage amounts using beginning and ending meter readings, updates of location and current meter reading value, and posting of the usage to Job Costing
Logging Rental Usage
All rental usage is entered through the usage log system. This is very versatile and allows adjustment of hourly rates, automatic calculation of usage amounts using beginning and ending meter readings, updates of location and current meter reading value, and posting of the usage to Job Costing.
The equipment costing module is fully integrated with Accounts Receivable. As a result, any usage which is recorded on an accounts receivable invoice is automatically recorded in Equipment Costing. This includes dollars billed and units (hours, days, etc.) used.
Equipment Costing Reports
From time to time as desired, various analysis reports may be run. Each report maintains cost and income information for this month, this year, and cumulative. A period-closing routine should be run monthly and annually.
Equipment Costing Analysis Reports
Equipment Costing Detail Reports
Equipment Listing
Equipment Costing Cost Category Listing
Log Proof Listing