HIGHWAY COST KE,EPTNG. 7 



The theory of natural depreciation, epitomized, is that all equipment, 

 even if kept in the best of repair, in time will reach a state whore re- 

 pairs no longer are sufficient to keep it in economical working condi- 

 tion and the entire machine must be renewed. The fund created by 

 the depreciation charges is intended to supply the money to purchase 

 a new machine to take the place of the one expended, or to retire 

 the original investment in case the machine no longer is needed. 



Any of the depreciation formulas is satisfactory in determining 

 rental charges, provided the assumed life of the machine be approxi- 

 mately correct. As the assumption of the useful life of the machine 

 may be the source of considerable error, there seems to be little argu- 

 ment for the finer calculations as to methods of distributing the 

 depreciation. 



It will be found convenient in computing depreciation to group 

 elements of the plant having approximately the same serviceable life. 

 This will have the advantages of requiring fewer accounts and tending 

 to equalize high and low assumed machine life. 



Repairs and renewals are charges due to breakage or the wearing 

 out of expendable parts of equipment. It is obviously incorrect to 

 charge to repairs or renewals any improvements or betterments added 

 to any piece of equipment. When such improvements have been 

 made the cost should be added to the present value of the 

 machine and a new depreciation computed upon this new value. 

 An example of such a case would be the addition of a conveyor to an 

 old stone crusher for the purpose of doing away with shovelers. The 

 The improvement is not a repair of any broken parts or a renewal of 

 any part worn out by the continual use of the machine ; it is a new 

 feature which adds to the value of the crusher. A rebuilt second- 

 hand machine may be considered in the same light. 



Interest, taxes, and insurance. — Interest should be charged on the 

 investment at the rate paid or the prevailing rate, where there is no 

 indebtedness. 



Taxes, as paid, should be charged in the rental rate. 



Insurance should be charged either as paid or at the prevailing rates 

 if the organization carries its own risk. 



Fixed charges are discussed further on page' 9. A table of plant 

 rental is included in the Appendix. 



GENERAL EXPENSES. 



The fourth element of cost is general expense. It often is called 

 "overhead" or "burden," terms derived from factory cost keeping, 

 the use of which in highway-cost keeping is not recommended. 



General expense includes all charges that can not be connected 

 directly with the cost of labor, material, and plant. For convenience 

 in accounting and for the purpose of securing a desirable division of 

 road cost, general expense will be considered as .divided into two 



