Equipment Cost Allocation Across Multiple Jobsites#

Executive Summary#

ICI subcontractors invest significantly in equipment—vehicles, trailers, scaffolding, lifts, and specialized tools. This equipment moves between jobsites as project needs shift. For accurate job costing, equipment costs must be allocated to the projects that use that equipment. This guide explains approaches to tracking equipment usage and allocating costs across multiple jobsites.

The Context for ICI Subcontractors#

Equipment represents a substantial investment for most subcontractors. A mechanical insulation contractor might own trucks, trailers, scissor lifts, scaffolding, and various specialized tools—representing hundreds of thousands of dollars in capital.

Unlike labor and materials, which are consumed on specific projects, equipment is used repeatedly across many projects over years. The challenge is allocating the cost of owning and operating equipment to the projects that benefit from its use.

Without equipment cost allocation:

Job costing understates true project costs
Profitable projects subsidize unprofitable ones
Decisions based on incomplete cost data may be flawed
Equipment investment decisions lack supporting information

Types of Equipment Costs#

Ownership Costs#

Costs incurred regardless of whether equipment is used:

Depreciation: The decline in equipment value over time. A $60,000 truck that will be used for 6 years has roughly $10,000 annual depreciation (simplified straight-line).

Insurance: Liability and property insurance covering equipment.

Registration and licensing: Annual fees for vehicles and licensed equipment.

Storage: Costs of storing equipment when not deployed.

Financing: Interest costs if equipment is financed.

Operating Costs#

Costs incurred when equipment is used:

Fuel: Fuel consumed during operation and travel.

Maintenance: Routine maintenance, repairs, and parts replacement.

Tires and consumables: Wear items that require periodic replacement.

Operator costs: If equipment requires a dedicated operator (beyond normal labor).

Rental Costs#

When equipment is rented rather than owned:

Rental fees: Daily, weekly, or monthly rental charges.

Delivery and pickup: Transportation costs to get equipment to and from the jobsite.

Fuel and consumables: Usually the renter's responsibility.

Damage charges: Costs for damage beyond normal wear.

Approaches to Cost Allocation#

Direct Tracking#

The most accurate approach tracks actual equipment usage:

Time-based tracking: Record hours or days each piece of equipment is on each jobsite.

Usage-based tracking: For some equipment, track actual usage metrics (hours of operation, miles driven).

Location tracking: Know where equipment is at any time, enabling automatic allocation by location.

Direct tracking requires discipline. Someone must record when equipment arrives at a jobsite and when it leaves. This effort produces the most accurate allocation.

Rate-Based Allocation#

Apply a predetermined rate to tracked usage:

Hourly rates: Charge projects a rate per hour of equipment use.

Daily rates: Charge projects a rate per day equipment is on site.

Rate calculation: Rates should cover ownership costs (depreciation, insurance) plus expected operating costs.

A scissor lift might have an internal charge rate of $150 per day. A project using the lift for 10 days is allocated $1,500 in equipment cost.

Simplified Allocation#

Less precise approaches that require less tracking:

Labor-based allocation: Allocate equipment costs proportionally to labor hours or labor cost.

Revenue-based allocation: Allocate based on project revenue.

Flat allocation: Assign a fixed equipment charge per project.

Simplified approaches require less tracking effort but produce less accurate allocation. They work acceptably when equipment usage is relatively consistent across projects.

Rental Equivalence#

Value owned equipment at market rental rates:

Rental rate application: If a comparable piece of equipment rents for $200 per day, charge projects that rate for owned equipment usage.

Market basis: Using market rates ensures projects bear realistic equipment costs regardless of ownership.

Profit/loss capture: Difference between internal charge and actual cost goes to equipment profit/loss center.

Calculating Equipment Rates#

Ownership Cost Component#

Calculate annual ownership cost:

Depreciation: (Purchase price - Salvage value) / Useful life

Example: ($60,000 - $10,000) / 5 years = $10,000 per year

Insurance: Annual premium allocated to this equipment

Other fixed costs: Registration, licensing, financing costs

Total annual ownership cost: Sum of all fixed costs

Operating Cost Component#

Estimate annual operating cost based on expected utilization:

Maintenance: Historical maintenance cost or estimated percentage of value

Fuel: Expected fuel consumption × fuel price

Consumables: Estimated annual cost of wear items

Total annual operating cost: Sum of variable costs

Rate Calculation#

Total annual cost: Ownership cost + Operating cost

Expected utilization: Days or hours equipment will be used annually

Rate: Total annual cost / Expected utilization

Example:

Annual ownership cost: $15,000
Annual operating cost: $8,000
Total annual cost: $23,000
Expected utilization: 200 days per year
Daily rate: $23,000 / 200 = $115 per day

Rate Review#

Equipment rates should be reviewed periodically:

Are actual costs aligned with rate assumptions?
Has utilization changed?
Have operating costs increased or decreased?

Rates that do not reflect reality produce inaccurate job costing.

Tracking Equipment Movement#

Check-In/Check-Out Systems#

Record when equipment moves:

Dispatch records: When equipment is assigned to a project

Arrival confirmation: When equipment reaches the jobsite

Departure records: When equipment leaves for another site or returns to storage

Documentation: Who moved it, when, from where, to where

Location-Based Tracking#

Technology-enabled tracking:

GPS tracking: Equipment location tracked automatically

Geofencing: Automatic recognition when equipment enters or leaves defined areas (jobsites)

Automatic allocation: Equipment time allocated based on location data

Physical Inventory#

Periodic verification of equipment location:

Jobsite equipment lists: What equipment should be at each site?

Physical verification: Actually confirm equipment is where records say

Reconciliation: Identify and correct discrepancies

Rented Equipment Allocation#

Direct Allocation#

Rented equipment is typically easier to allocate:

Project-specific rentals: Equipment rented for a specific project is allocated directly to that project.

Invoices as documentation: Rental invoices provide clear cost records.

Shared Rentals#

When rented equipment is used on multiple projects:

Split allocation: Allocate rental cost based on time on each project.

Primary project: Charge primary project; allocate to others if significant use occurs.

Documentation: Track actual usage to support allocation.

Common Allocation Challenges#

Equipment Moves Frequently#

Equipment that moves often creates tracking burden:

High-movement equipment: A truck used on three projects in one day is difficult to track.

Practical approaches: For high-movement equipment, simpler allocation methods may be acceptable.

Material impact: Focus tracking effort on high-value equipment where allocation accuracy matters most.

Idle Equipment#

Equipment that sits unused still incurs ownership costs:

Idle cost treatment: Charge idle equipment to overhead or a holding account, not to projects.

Utilization visibility: Tracking shows when equipment is underutilized.

Disposal decisions: Chronically underutilized equipment may not be worth keeping.

Shared Owned/Rented Fleet#

Many contractors own some equipment and rent additional as needed:

Consistent treatment: Apply similar rates and tracking regardless of ownership.

Make/buy visibility: Comparing owned equipment costs to rental alternatives informs future acquisition decisions.

Small Tools and Consumables#

Tracking individual hand tools is impractical:

Small tool allowance: Allocate a fixed amount per labor hour for small tools.

Threshold definition: Define what is tracked individually versus allocated as allowance.

Replacement basis: Replenish small tool inventory as general expense.

Benefits of Good Equipment Allocation#

Accurate Job Costing#

Equipment costs included in job costing provide complete cost picture:

True project profitability is visible.
Under-performing projects are identified accurately.
Estimating can use complete historical data.

Equipment Investment Decisions#

Usage data informs equipment decisions:

Acquisition: Should new equipment be purchased based on utilization of existing fleet?

Disposal: Which equipment is underutilized and should be sold?

Replacement: When should aging equipment be replaced?

Maintenance Planning#

Tracking equipment by project supports maintenance:

Usage-based maintenance: Schedule maintenance based on actual hours or usage.

Cost tracking: Understand maintenance cost per piece of equipment.

Problem identification: Equipment requiring excessive maintenance may need replacement.

Billing Support#

For projects with equipment billing provisions:

T&M billing: Equipment charges require usage documentation.

Equipment rates: Contracted rates applied to tracked usage.

Backup documentation: Records support billing if questioned.

How Appello Supports Equipment Cost Allocation#

Appello's Equipment module enables tracking of equipment across jobsites. Equipment can be assigned to projects, and the system maintains visibility into where equipment is located. This tracking supports cost allocation by providing the usage data needed to charge equipment costs to appropriate projects.

Integration with Job Costing & Budgets connects equipment costs to project financial performance, ensuring job costing reflects complete costs including equipment.

Conclusion#

Equipment represents a significant investment that benefits multiple projects. Allocating equipment costs to projects ensures job costing reflects true costs and enables informed decisions about both projects and equipment.

The right level of tracking precision depends on equipment value, movement frequency, and the accuracy required. High-value equipment warrants precise tracking. Low-value or high-movement equipment may be allocated using simpler methods.

Whatever approach is chosen, consistent application enables meaningful cost analysis and comparison across projects and over time.

Related Reading: