Plant charge must include not only the depreciation on equipment, but freight and handling to the job and back to where the equipment can be sold or used on another job. It is often the case that return freight and handling may sometimes amount to more than the depreciated value of certain portions of the equipment so that it does not pay to remove it. Let us see how the matter may work out actually. We will assume two jobs precisely similar as to apparent plant requirements. One of these, however, is located near a center of supply and demand, and is easy of access; the other in a remote location and more difficult of access. The machinery and equipment has been kept in ordinary working condition, has been used five years and has been rated as worth 50 per cent, of first cost. As some portions will be scrapped, assume that four-fifths of the original weight is removed from the work. Naturally the materials which enter into the erection will cost more in one case than in the other.

A

B

In remote location rather difficult of access

Located near supply center, easy of access

First cost of machinery and equipment at center of

Supply.....

$150,000

$150,000

Freight to railroad station nearest the work.....

25,000

10,000

Wagon haul and handling...........

10,000

2,000

Materials and labor of erection...............

45,000

38,000

Interest five years at 6 per cent...............

69,000

60,000

Total plant cost..................

$299,000

$260,000

Salvage value 50 percent........

$75,000

$75,000

From which deduct freight and wagon haul on fourfifths original weight, back to point of disposal

20,000

8,000

8,000

1,600

Actual salvage to credit of job.................

$47,000

$65,400

Plant cost.................

$299,000

$200,000

Minus actual salvage................

47,000

65,400

Plant account chargeable to job......

$252,000

$194,600

The difference in plant charge, depending on location is $252,000 minus $194,600 or $57,400.

Although additions to plant investment may seldom be so definitely convertible into terms of reduced operating expense, let us assume that a purchase of 25 per cent, additional equipment will reduce the cost say 15 cents per cu. yd. on 300,000 cu. yd. of masonry. Now let us see how the plant accounts work out in the two locations. Freight, handling and erection are assumed to be increased in proportion.

Aplus 25%

B plus 25%

First cost of machinery and equipment at center of supply

$187,500

$187,500

Freight to railroad station nearest the work............

31,250

12,500

Wagon haul and handling...........................

12,500

2,500

Materials and labor of erection............

56,250

47,500

Interest five years at 6 percent................

86,250

75,ooo

Total plant cost...............

$373,750

$325,000

Salvage value 50 percent................

$93,750

$93,750

From which deduct freight and Wagon haul on fourfifths original weight. back to point of disposal............

25,000

10,000

10,000

2,000

Actual salvage to credit of jobs...............

$58,750

$81,750

Plant cost............

$373,750

$325,000

Minus actual salvage............

58,750

81,750

Plant account chargeable to job...........

$315,000

$243,250

The difference in plant charge, depending on location, is $315,000 minus $243,250 or $71,750.

This shows that the contemplated purchase of 25 per cent, more plant in order to effect a saving of $45,000 in building cost would be inadvisable in the case of A and about a standoff in the case of B. The resulting additions to plant account chargeable to job are $63,000 for A and $48,650 for B. Of course, if the increased plant resulted in greater daily output, thus reducing the time required for the work, it might be that the expenditure would be justifiable in either case. Assume, for instance, that interest and other overhead charges might amount to $75 per day. Then a reduction in time of 240 days in the case of A and forty-nine days in the case of B would balance the apparent deficit above.