Economics #04: Operation and Maintenance Costs
How do maintenance costs work?
Companies sort maintenance costs into three categories. This aids them in differentiating between these costs, allowing them to assess the financial performance of their business. These three categories include :
1. Fixed costs
The recurring expenses a business incurs to maintain its facilities, equipment, and other assets are known as fixed costs. These costs are unaffected by productivity and performance, so businesses can more effectively plan their budgets. Some fixed maintenance costs many companies track include:
2. Variable costs
Variable maintenance costs change with the productivity of a company. Higher productivity can increase a company’s need for maintenance, while lower productivity could result in lower variable maintenance costs. Variable maintenance expenses a company might track include:
3. Semi-variable costs
Fixed and variable maintenance costs are both present in semi-variable maintenance costs. Similar to variable costs, these costs fluctuate with the productivity levels of the business. Additionally, similar to fixed costs, businesses must pay these costs regardless of production. Some semi-variable maintenance costs many companies account for include:
What are maintenance costs?
Maintenance costs are the one-time or ongoing expenses a business has to pay to keep its properties, vehicles, and other assets in good working order. Some businesses pay these costs for routine upkeep or preventative measures that keep their assets in good working condition. A business can better allocate resources for maintenance costs by being aware of the maintenance costs related to a particular piece of equipment or facility. They can examine these costs in order to make a decision regarding the purchase of a piece of machinery or a vehicle.
Types of maintenance costs
With regard to a business’s real estate and machinery, maintenance costs come in many different forms. Some types of maintenance costs include:
Property
Property maintenance costs help a company keep its facilities operational. Regardless of whether a building is used for production or as offices, businesses incur property maintenance costs. Property maintenance costs companies incur include:
Vehicles
Vehicles also require regular maintenance to remain functional and safe. Regular maintenance, like oil changes and tire rotations, can help a business’s vehicles last longer. The following are some common car maintenance and replacement items:
Technology and electronics
Many companies also incur technology or electronic maintenance costs. Depending on how much technology or electronic equipment a business utilizes on a regular basis, these costs may vary. A business may budget the following costs for technology or electronic maintenance:
Office equipment
Additionally, businesses maintain office supplies to improve the look and functionality of workers’ workspaces. Some businesses may upgrade or replace dated office equipment to increase productivity and ergonomics. Office equipment that many companies maintain, repair or replace includes:
Employee costs
Companies also invest in maintaining employee loyalty. Some businesses pay these maintenance costs through benefits programs, company events, or overtime hours. Employee maintenance costs can include:
Insurance
Companies also invest in maintaining insurance coverage for their operations. Insurance costs are typically fixed, making it easier for businesses to plan their budgets for these costs. Insurance programs that companies often allocate maintenance expenses for include:
Production equipment
Companies in the manufacturing sector must also pay for the upkeep of their production machinery. Based on preventative maintenance plans and urgent maintenance requirements, these costs may change. To increase productivity and minimize equipment downtime, businesses frequently implement effective maintenance programs.
Examples of how maintenance costs work
Examine the following examples of maintenance expenses to learn how to track them for your business:
Facility maintenance costs example
Two of Tennant Industries’ production facilities are equipped with fire suppression systems. The business employs outside contractors once a year to inspect and maintain their fire suppression systems. The business can accurately plan for this annual cost because they have a contract in place with the third party that specifies labor, material, and other maintenance costs.
A property maintenance invoice is sent to the business by the contractor once system maintenance is complete. The system is a component of the facility, and Tennant Industries records this invoice as fixed facility maintenance on their expenses report because they have an agreement with the third-party contractor regarding the price.
Technology maintenance costs example
More than 300 business computers are connected to the network at Iron Technologies. To increase the amount of disk space and data storage the business has available, their IT team performs routine preventative maintenance. The team determined that all company computers must have new virus and spyware protection installed.
The business pays for the right to use a third-party’s virus and spyware software, which the IT department can set up. The cost of the new software is recorded as a technology maintenance expense because it is used to maintain the company’s computer and network security. The annual payment under the purchase agreement is a set sum that the company agreed to when the asset was acquired, so the company can classify this expense as a fixed maintenance cost.
Equipment maintenance costs example
Throughout its facility, the lumber manufacturing company Woodart Manufacturing has a variety of production tools. The company’s leadership team recently observed that one of the planer machines was producing more items that weren’t in accordance with company specifications. Their maintenance staff identified the issue and determined that a specialist was needed to solve it because the machine needed specialized tools. The business requests a specialized technician be dispatched from the machine manufacturer to fix the machinery.
The manufacturer sends a technician with the necessary parts and specialized tools. The manufacturer sends Woodart Manufacturing a one-time invoice for the repair after the technician has finished repairing the machine. Under semi-variable maintenance costs, the company records this as a maintenance expense. This is because this expense has fixed and variable characteristics. The cost varies according to how frequently the business uses the planer machine, and the business pays the invoice whether or not the machine is in use.
FAQ
What are the different types of maintenance costs?
…
Labor
- Wages and salaries.
- Benefits and bonuses.
- Training and development costs.
- Safety and incidents insurance and costs.
- Contractor costs.
- Emergency or overtime pay.
How do you determine maintenance costs?
Budget at least 1% of the home’s purchase price, if you’re following the 1% rule of thumb, for maintenance costs. Using this rule, you should allocate a minimum of $2,500 for maintenance and repairs if you bought a $250,000 home.
What are the components of maintenance cost?
Simply put, maintenance costs consist of direct labor with benefits, materials, contractor labor, salaries, and overhead. The total cost of maintenance should be calculated as the sum of these elements. There is a definition for each of these elements that needs to be used consistently.
What are repair and maintenance costs?
What is the definition of repairs and maintenance expense? It is the cost incurred to keep an asset operational. This may entail maintaining an asset’s current performance level or restoring performance levels to the point at which they were when the asset was first acquired.
