is on the operation, but also the ratio of the value of the service rendered to the value of the equipment. Basis of Rental Charge for Heavy Equipment Heavy equipment should be placed upon a rental basis. The rental charged to the cost of construction is calculated on the number of days the piece of equipment is on the operation, a fixed rate per full week or full month being first established. If the fixed rate is $25 per week, and the equipment is delivered on Thursday, the charge for the balance of the week would be for one-half of a week, or $12.50. RENTAL FACTORS. Several factors must be considered in determining the rental rate to be charged for a particular piece of heavy equipment. Among these are: (a) Probable life of equipment. (c) Cost of storage, insurance, taxes, etc. (d) Average idle time during probable life of equipment (time when it is not earning rentals). (e) Salvage value at end of useful life of equipment. (f) Rate charged by agencies making a business of renting equipment. IDLE TIME. The problem of idle time is very important. What percentage of the total possible rental earnings of equipment should be allowed for idleness is dependent on the class of construction work performed. The percentage allowed for idleness should be based on idleness during a period of normal activity. In constructing large buildings, the use of steel derricks is practically limited to hoisting steel columns and beams. In building a bridge, however, the derrick would be used almost throughout the entire time of the operation. In one case, the time when the derricks were in use on operations would be a small fraction of each year, unless a number of new build ings were continually being started. In the other case, the average idle time of the derrick per year over a reasonable period of years would be very small. A study must be made of conditions applying to each piece of equipment. EXPERIENCE TABLES. The table appearing in the Appendix was prepared by the Associated General Contractors of America and represents the average experience of a number of contractors. The last column indicates the annual percentage of the initial cost of the equipment which must be charged in order to cover depreciation, repairs, upkeep, and interest on investment. Deducting the percentage included in the table for interest on investment, the remainder is the percentage of the cost of equipment which the contractor must receive annually to reimburse him for his actual cash outlay, i.e., the sum of the initial cost of equipment and expenditures for repairs and upkeep, less salvage value of the equipment at the end of its useful life. If an electric hoisting engine costs about $3,000, the annual return that must be obtained is 23%, or $690. The effect of idle time upon a rental charge can be illustrated by assuming that a particular contractor's equipment is in use for an average of 26 weeks a year. If $690 be divided by 52, the number of weeks in a calendar year, $13.27 is obtained as a charge to be made weekly. If this rental were only earned during 26 weeks each year, the total annual rental received would be $345.02, or about 50% of the sum necessary to reimburse the contractor for his actual cash outlay. Another factor which must be considered is the existence of agencies whose business is renting certain items of equipment. The rentals charged by them pay their expenses and yield a profit. The contractor makes his primary profit from construction. He should establish rates lower than those charged by equipment-renting agencies.? Basis of Charge for Use of General and Perishable Equipment The cost of keeping records does not justify charging equipment of this class on a rental based on the number of days in use. The cost would have to be included in the amount the contractor would have to receive annually to reimburse him for his actual cash outlay. The equipment cannot be rented from equipment-renting agencies. It must be purchased from a supply house whenever it is needed on an operation. An equitable method is to establish the relation between the value of the equipment and the value of the service it renders and then take a percentage of the value of the equipment as the charge for its use. The job is charged with the inventory value of the equipment when delivered. When the equipment is returned in good condition to the contractor, credit is given the job for its inventory value, less the percentage for use. When equipment is delivered under an agreement to charge 60% for use, the job is charged with $200 (the value of equipment delivered), and credited with $80 (40% of its value), when the equipment is returned in good condition. Some equipment may physically outlive an operation, but average wear and tear result in such heavy damage being done that the contractor's cost of repairs is excessive. The equipment is junked and the job given credit for the salvage obtained upon the sale of the equipment. Repairs Consideration must be given to the conditions causing equipment repairs, when determining which repairs should be charged to cost of construction and which should be borne by the contractor as an item of equipment overhead expense. When a charge is made for the use of equipment, it should be kept in running order and in usable condition without further cost, except such additional cost as may result from misuse. The equipment yard should bear all expenses necessary to repair any damage due to ordinary wear and tear. The construction operation should stand the cost of repairs and replacements resulting from accident, gross carelessness, misuse, or from theft or loss of parts. If while an electric hoisting engine is in use on an operation a lever is broken through carelessness, the cost of supplying a new lever should be borne by the job. The armature of an electric hoisting engine will require rewinding after being in use on several operations. While far more costly than supplying a new lever, the rewinding is ordinarily due to continųed use, and the cost should be borne by the equipment yard. Brass parts may be stolen on the job. The cost of replacing them is chargeable to the construction. Control of Billing The systems for controlling the movement and the inventories of equipment were outlined in Chapter VII. When both the receiver's and the sender's copies of shipping lists (Form 13, page 49) are received in the office, invoices and credits are prepared by the equipment department. The job receiving the shipment is charged and the job shipping it is credited. These bills and credits are numbered serially and the serial number noted in the third column of the shipping list record (Form 15, page 87). At regular intervals the bills and credits are given to the accounting department, accompanied by an invoice report. These reports cover all deliveries and returns. A sufficient number of money columns is used to provide a column for each equipment inventory account on the general ledger. The details for identifying each invoice for equipment delivered to a job are entered on a "deliveries report." Credits for equipment returned appear on a "returns report." The reports covering deliveries are journalized by crediting the total of all invoices to the proper equipment inventory account and charging the total to the Deliveries Controlling account. The individual invoices listed on the deliveries reports are entered on the purchase register (Form 19) as charges to the jobs to which the equipment was delivered and as credits to the Deliveries Controlling account. The entry differs from Entry as given in the form only in substituting the title "Deliveries Controlling" for "Patterson Bros.," and extending the amount in a Deliveries Controlling column instead of Creditors' Controlling. The posting is to the general ledger after all registers have been summarized, as explained in Chapter X. The report covering returns is credited to the Returns Controlling account and charged to the proper equipment inventory account. The individual credits are entered in red on the proper purchase register. Credit is given the jobs returning the equipment and the Returns Controlling account is charged. The amount of the entry is extended in the Returns Controlling column and posting made to the general ledger through the summary referred to in the preceding paragraph. EQUIPMENT RENTAL CONTROL. When heavy equipment such as derricks, hoisting engines, etc., is shipped to a job on a rental basis, the charge against the job is based on the number of days' use of the piece of equipment. The job prepares a rental roll for whatever period is established as the uniform rental period. The roll indicates what equipment is on the job from day to day. This rental roll is compared |