8.3 Takeoffs, Equipment Lease vs Purchase & Inventory

8.3 Takeoffs, Equipment Lease vs Purchase & Inventory

The rest of Area C is purchasing and ordering materials (math, job schedules, negotiation, quality control, quantity take-offs, invoice abbreviations, building materials), leasing versus purchasing equipment (operating cost, depreciation, forecasted use, interest, maintenance, salvage), and inventory of materials, tools, and equipment. Chapter 6.1 already covered the UCC statute of frauds, the three-way match, FIFO, and Florida sales tax. This section is the operations math: what quantity to buy, when the job schedule needs it, whether the asset is a current inventory item or a depreciable tool, and whether you should lease, rent, or buy the crane, brake, or recovery fleet. The accounting reference is Builder's Guide to Accounting (2001) on the 2026 B&F list.

Quantity take-offs tied to the job schedule

A quantity take-off is a measured list of materials from the drawings and specifications, not a round number from last year's similar job. HVAC take-offs include equipment (model, voltage, refrigerant, curb, economizer), duct (size, pressure class, gauge, liner, flexible runouts), refrigerant piping (diameter, length, fittings, insulation), electrical (disconnects, whip, control cable — within HVAC license limits), hangers, and consumables with a waste factor.

Worked take-off. A 24-inch by 12-inch galvanized trunk, SMACNA 2-inch pressure class, runs 80 linear feet. Surface area for sheet-metal billing is often the wrapped perimeter times length: perimeter = 2 × (24 + 12) = 72 inches = 6 feet; 6 × 80 = 480 square feet of duct wall before fittings. Add counted fittings and a waste and drop allowance of 10%: 480 × 1.10 = 528 sq ft of coil stock to order, plus the fittings as counted pieces. If the CPM needs duct on site the week the units land, the purchase order's promised date is a predecessor to the install activity, not a warehouse hope. Quality control is receiving against the take-off and the approved submittal: wrong gauge, wrong seal class, or a 208-volt unit against a 460-volt schedule is a rejected receipt, not a field surprise.

Negotiation is leverage plus a written purchase order: quantity, mill or factory origin, freight (FOB point), promised date, and the right to reject nonconforming goods. Ordering early to beat a refrigerant-allocation squeeze is a schedule decision. Ordering a year's worth of 5-ton condensers as inventory when you have two pending changeouts is how cash dies on the shelf.

Invoice abbreviations the exam still uses

Vendor invoices and quotes compress terms into abbreviations. Misreading them is a purchasing error.

Worked cash discount. An $8,000 copper and fittings invoice is 2/10 net 30. Pay by day 10 and you pay 8,000 × 0.98 = $7,840. The $160 discount annualizes to a very high equivalent interest rate if you skip it to save cash for 20 more days. Builder's Guide problems expect the arithmetic, not a speech about vendor relationships.

Depreciation from Builder's Guide to Accounting (2001)

Depreciation allocates the depreciable basis of a capital asset over its useful life. Job materials are not depreciated; they become job cost when issued. Tools and equipment — recovery machines, vacuum pumps, a shop brake, a box truck, a scissor lift you own — are depreciated.

Straight-line is the method contractor exams grind:

Annual depreciation = (cost − salvage value) / useful life in years

Book value at the end of a year equals cost minus accumulated depreciation.

Worked example. A Class A shop buys a used 8,000-lb telehandler for $48,000. Estimated salvage at the end of 6 years is $6,000. Straight-line depreciation = (48,000 − 6,000) / 6 = $7,000 per year. After three years, accumulated depreciation = $21,000 and book value = $27,000. If you sell it then for $30,000, you have a $3,000 book gain. If you scrap it for $2,000, you have a $25,000 book loss. Forecasted use matters: if the telehandler will work 400 hours a year, ownership depreciation is $7,000 / 400 = $17.50 per hour before interest, insurance, and repairs. If it will work 40 hours a year, that is $175 per hour of depreciation alone — rent the machine.

Interest on a purchase loan is an ownership cost, not depreciation. A $40,000 note at 9% costs about $3,600 of interest in year one (declining as principal is paid). Maintenance is operating cost: tires, filters, certified lift inspections. Salvage is the estimated residual you put in the straight-line formula; it is not cash until you sell. Tax depreciation (MACRS lives and conventions) can differ from book depreciation; the exam will tell you which method to use. If the stem says straight-line and gives salvage, use the formula above — do not invent a half-year MACRS table.

Lease versus purchase

Purchase when forecasted use is high, the asset has a real salvage, and the shop has cash or credit that does not starve bonded work. You take depreciation, interest, insurance, property tax if any, maintenance, and residual risk.

Lease or rent when use is spiky (a 70-foot boom four times a year, a 90-ton crane for one Saturday RTU pick), when technology is changing (refrigerant identifiers and recovery machines during an HFC transition), or when the surety cares more about working capital than about owning iron.

Worked comparison — own a telehandler versus rent at two utilization levels:

At 400 hours, buying wins on this arithmetic. At 40 hours, renting wins. That is forecasted use. A Class A chiller plant with monthly rigging is a buy candidate for a telehandler. A Class B residential shop that needs a crane twice a summer should not buy a crane because depreciation is a tax write-off. Depreciation is a cost allocation; it does not print cash.

Operating cost of owned equipment charged to a job equals hourly ownership (depreciation + interest + insurance + tax, divided by annual hours) plus hourly operating (fuel, repairs, maintenance) plus the operator. Underbilling a crane day by using only a rental-house rate while you actually own a low-hour machine is how job-cost profit lies.

Material, tool, and equipment inventory

Three different piles:

• Material inventory — copper, filters, refrigerant cylinders, contactors, stocked condensers. Current asset. Issued to jobs (FIFO or the shop's cost-flow method). Physical count at least annually; cycle-count refrigerant and serialized equipment. EPA Section 608 and the venting prohibition still apply to cylinders in the cage; inventory control is also a compliance control. EPA 608 is not a substitute for a CILB license.
• Tool inventory — gauges, recovery machines, vacuum pumps, benders assigned to trucks. Capitalize when the company's policy and materiality say so; depreciate. A $30 flare tool is expensed; a $4,000 recovery machine is not materials.
• Equipment inventory — vehicles, lifts, brakes, welding machines. Depreciable fixed assets. Tag, maintain, and schedule. A brake sitting in the shop is not job cost until a job uses it (then charge equipment cost, not the asset's remaining book value, to the job).

A ship-to-job 15-ton RTU that never hits the warehouse is still received against the purchase order and the approved submittal. If it is stored materials on a G702, it is not shop inventory and it is not yet depreciable property of the contractor — it is job cost or a contract asset under the contract's stored-materials rules.

Florida HVAC scenario

Palm Coast Air (Class B) take-off for a 5-ton changeout: one air handler, one 5-ton heat pump (inside Class B), line-set, pad, disconnect replacement on the existing dedicated single-phase circuit, thermostat cable, and a condensate line to an existing safe waste. The quantity take-off is those counted pieces plus a waste factor on line-set and insulation — not about $4,200 in materials like last month. The shop owns two recovery machines (depreciate; straight-line if that is the book method) and rents a crane for the one 7.5-ton commercial rooftop it does per quarter (rent, because forecasted use is too low to buy). Filters on the shelf are inventory. Paying a $12,500 equipment invoice 2/10 net 30 on day 8 saves $250. Missing the discount to float cash because retainage is stuck on a public job is a cash decision, not a reason to skip the take-off.