How to Calculate Overhaul Cost of Equipment

Overhaul occurs when equipment is removed and replaced. However, the cost of replacing equipment is not merely the cost of the new equipment. It is also the loss in value of the existing equipment as well as the cost to remove the old to make room for the new. Knowing the cost to overhaul is essential to make the best decision of whether to repair, replace or upgrade equipment.

Identify the make, model and serial number of the equipment. You will need this information to research the present realizable salvage value of the equipment.

Determine the present realizable salvage value of the equipment. This value is determined by examining the physical condition of the item. MacRae's Blue Book is the industrial equivalent of the Kelley Blue Book for the automotive industry. However, an independent appraisal may be necessary to get this value.

Request quotes for the cost to overhaul the equipment. Seek at least three quotes from a list of reputable replacement equipment vendors.

Average the quotes for the cost to overhaul the equipment. This value will be used as the base cost to overhaul.

Determine if there is a cost for equipment removal. For example, this can include the cost of a crane or hoist to remove the equipment or a truck rental to transport the equipment to a potential seller. If there are additional removal costs, add this amount to the "total cost to overhaul" as this is an additional cost to complete the overhaul.

Subtract the total cost to overhaul from the present realizable salvage value of the item. The result is the complete overhaul cost.