What are Maintenance Costs and How Do They Work?
Updated June 24, 2022
Many companies analyze maintenance costs to make effective financial decisions for their organization. Understanding maintenance costs can help finance professionals identify areas for improvement regarding company expenditures. Learning more about maintenance costs and how companies classify these expenditures can help you record and track these expenses for your company. In this article, we discuss maintenance costs, review how these costs work, examine different maintenance expenditures and explore three examples to help you expand your understanding of these expenses.
What are maintenance costs?
Maintenance costs are the one-time or recurring costs a company incurs related to maintaining company facilities, property, vehicles or equipment. Some companies incur these costs for general or preventative maintenance that help keep their assets in proper working order. Understanding the upkeep costs associated with a piece of equipment or facility can help a company allocate funds for maintenance costs. They can also review these expenses to help them decide on purchasing a piece of equipment or a vehicle.
How do maintenance costs work?
Companies sort maintenance costs into three categories. This helps them distinguish between these expenses, which can help them analyze their company's financial performance. These three categories include :
1. Fixed costs
Fixed costs are the consistent costs a company pays to maintain its equipment, facility or other assets. Productivity and performance don't affect these costs, which can help companies effectively budget for these expenses. Some fixed maintenance costs many companies track include:
Maintenance of employee salaries
Related: How To Become a Maintenance Engineer
2. Variable costs
Variable maintenance costs change with the productivity of a company. Higher productivity can cause more maintenance requirements for a company, while lower productivity might lessen variable maintenance expenses. Variable maintenance expenses a company might track include:
Third-party labor hours
3. Semi-variable costs
Semi-variable maintenance costs have elements of fixed and variable maintenance expenses. These costs also change with company productivity levels, similar to variable costs. Also, like fixed costs, companies pay these expenses regardless of production. Some semi-variable maintenance costs many companies account for include:
Maintenance of employee overtime hours
Types of maintenance costs
There are many types of maintenance costs that correlate with a company's property and equipment. Some types of maintenance costs include:
Property maintenance costs help a company keep its facilities operational. Regardless if a facility is a production facility or office building, companies gain property maintenance costs. Property maintenance costs companies incur include:
Changing facility air filters
Roofing inspection and repair
Testing smoke and carbon monoxide detectors
Vehicles also require regular maintenance to remain functional and safe. Recurring maintenance, such as oil changes and tire rotations, can help vehicles extend their useful life to a company. Some common items mechanics replace or maintain on a vehicle include:
Technology and electronics
Many companies also incur technology or electronic maintenance costs. These costs can change based on how much technology or electronic items a company uses regularly. Some technology or electronic costs a company might allocate for maintenance expenses include:
Companies also maintain office equipment to enhance the feel and productivity of employee workspaces. Some companies may repair or replace outdated office equipment, which can improve office efficiency and ergonomics. Office equipment that many companies maintain, repair or replace includes:
Companies also invest in maintaining employee loyalty. Some companies incur these maintenance costs as overtime hours, benefits programs or company events. Employee maintenance costs can include:
Company meals or refreshments
Tuition reimbursement programs
Quarterly or annual bonuses
Companies also invest in maintaining insurance coverage for their operations. Insurance costs are typically a fixed rate that can help a company budget for these expenses. Insurance programs that companies often allocate maintenance expenses for include:
General liability insurance
Commercial property insurance
Business income insurance
Companies in manufacturing industries also incur maintenance costs for their production equipment. These costs can vary based on preventative maintenance programs and emergency maintenance needs. Companies often establish robust maintenance programs to maximize productivity and reduce equipment downtime.
Examples of how maintenance costs work
Review these examples of maintenance costs to understand how you might track these costs for your company:
Facility maintenance costs example
Tennant Industries has two production facilities that have fire suppressant systems installed. Once a year, the company hires third-party contractors to inspect and maintain their fire suppressant systems. Since they have an established contract with the third party that outlines labor, material and other maintenance costs, the company can accurately budget for this annual cost.
Once the contractor finishes maintaining the system, they send a property maintenance invoice to the company. Tennant Industries records this invoice on their expenses report as fixed facility maintenance because the system is a part of the facility and has an established price with the third-party contractor.
Technology maintenance costs example
Iron Technologies has over 300 company computers connected to their network. Their IT team conducts regular preventative maintenance to increase available disk space and data storage for the company. The team identified the requirement for new virus and spyware software to be installed on all company computers.
The company purchases the usage rights for a third-party virus and spyware software that the IT team can install. Since the new software is being used to maintain the company's computer and network safety, they record the purchase expense as technology maintenance. The purchase agreement is a recurring annual payment, so the company can record this expense as a fixed maintenance cost because the annual payment is an established amount the company agreed to upon purchase.
Equipment maintenance costs example
Woodart Manufacturing is a lumber manufacturing company that has a variety of production equipment throughout its facility. Recently, the company's leadership team noticed one of the planer machines was producing more products outside of company specifications. Their maintenance team diagnosed the problem and identified the requirement for a specialist to fix the problem because the machine requires specialized equipment. The company contacts the machine manufacturing company to send a specialized technician to repair the equipment.
The manufacturing company sends a technician with the specialized tools and parts. Once the technician fixes the machine, the manufacturing company sends Woodart Manufacturing a one-time invoice for the repair. The company records this as a maintenance expense under semi-variable maintenance costs. This is because this expense has fixed and variable characteristics. The expense changes based on how often the company uses the planer machine and the company pays the invoice regardless of whether the machine is in production.
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