An Operatir Costs Record
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The Problem of Initiating a Youngster Into 'the Ways and Means of Keeping the Records of Operating Costs
of a Fleet of Vehicles.
QUITE recently, I had rather an interesting interview, some details of which deserve considerable publicity because they relate to a subject about which, once again, I am having a wave of inquiries, namely, as to reasonably simple methods of keeping records of operating costs.
A friend *of mine who operates a medium-sized fleet of vehicles, had just taken into his employment a young costs clerk with the object of training him to take charge of the records relating to the costs of operating his fleet. There was already a costing system in existence which was more or less satisfactory, but my friend's object in engaging this 'new hand was partly to obtain the benefit of the infusion of new blood into his -business organization and partly because he had appreciated that the costs system in vogue was somewhat inadequate.
He had commenced operations by offering this youngster a fairly free hand, but as he had had no previous experience of keeping the costs of a haulage contractor he had given him a copy of the current issue of "The Commercial Motor" Tables of Operating Costs and told him to study them as a preliminary to drafting his scheme. He also advised him to have a talk with me.
That is how the interview I am going to describe was brought 'about.
Figures that Served as the Basis for Discussion After the usual preliminaries and an explanation by this youngster of the reason for his calling upon me, we settled down to business. He had selected Table II as a basis for discussion and, at the start, said: " I see that the first items in this Table are referred to as standing charges. What exactly are these charges? "
" Standing charges comprise the items of expenditure in connection with the operation of a vehicle which do not
greatly vary according to the mileage which it covers," Itold him. " They are the same in respect of any particular vehicle in a week, whether it runs 500 miles or 300 miles."
"Then," he said, "Isn't it a mistake to include wages as an item of standing charges? I have been looking, through our own books of costs and, taking those relating to a 6-tonner, I find that the wages paid for,that vehicle are, more often than not, £6, £6 10s., or even as ,much as £7 per week and that they sometimes diminish to about £4 per week.
" Moreover," he continued, "there is no positive connection between the amount of wages paid and the mileage run. Sometimes the vehicle has covered a comparatively small mileage yet the wages are high and, on the contrary, there are times when the amount paid in wages is no more than that set down in The Tab/es, although that may have been a week when the vehicle mileage is at a maximum. I don't quite see how you can call wages a standing charge." "Well," I said, " you have, on youi owh admission, shown that it is true, as I suggested, that there is no direct relation between wages and the mileage that is run." " Yes," he interrupted, "I agree; but I still don't see how you can describe an item which fluctuates so widely from week to week as a standing charge." "It is a standing charge only in so far as it complies with the definition I gave you. It is convenient to divide the operating costs of a vehicle into two classes, those which fluctuate directly with the mileage—such as the cost of petrol consumed—and those which do not, and of the latter perhap,s the annual licence is the most obvious example. The item wages, according to that classification. comes properly under the heading of standing charges notwithstanding that where, as I gather is the case of your firm, a considerable amount of overtime is worked and the amount paid in wages may differ from week to week. "But how," I continued, "do you ,come to be so particularly interested in this one item? "
The Object—Keeping Clerical Work to a Minimum
" I will ten you," he replied. " I have drafted several forms for keeping records of operating costs and one principal object I have had in mind is that of keeping the clerical work to a minimum. The fleet is rather a large one —67 vehicles—and I wanted to eliminate the need for too frequently repeating items which continue to be the same week by week.
" I thought it would be a good idea to separate the standing charges from the Tanning costs and make up one total for the lot, that total, the same week by week, would then need to be added to those figures which fluctuate to give me my final figure. I don't want each week to put down 14s. licences, 10s. rent, 18s. insurance, '14s. interest and. I was thinking, 85s. wages. All want to do is to put down a total of £7 ls per week, tinder standing charges, and thus save myself a lot of unnecessary labour."
"Your idea is essentially sound," I replied, "and, in effect, it is what I should have recommended myself. In your case,. however, as wages fluctuate so considerably, you will have to limit your standing charges to the four items— licences, rent and rates, insurance and interest—and have a separate column for wages."
" And, by the' way," he said, "whilst on this subject of wages, I note that in the introduction to The Tables you state that the amounts set down include provision for National Employment Insurance, National Health Insurance, Insurance under the Workmen's Compensation Acts and for holidays with pay. Do you suggest that in the amount which I set down in my accounts for wages I should also include these iterds? "
" No. They must remain as separate entries in your accounts and, before we go any farther," I said, "I had better make clear the fundamental difference betw-den these costs tables and any costs records which you may cdmpile. The figures in these Tables represent the results of costs recording, summarized and consolidated so that they can provide positive information as to what may be expected
to be the operating cdsts of vehicles. It would be most unwise, and almost impossible, to use The Tables-directly as a form for compiling costs records."
" I'm glad you mentioned that,' he said, " because it does, in fact, nearly answer my next ,question, which is whether it is,necessary for me to work out My figures of cost of fuel, for example, at 200 miles per week, 300 miles per week, 400 miles per week and so on? "
"Good gracious, no, I answered. -" What you must show in your records is actual mileage week by week, actual expenditure week by week, of each of the items of running costs."
"Well, will you tell me," he asked, " where I can find that information? I have been looking through some of our account books and although there are figures showing the mileages run by various vehicles, and the petrol and oil fuel consumed, and so on, I have not been able to discover how my predecessor had got at those figures for mileage and consumption." • "You will almost certainly find what you want on the drivers' log sheets. 'You are aware, I suppose; that the driver of every vehicle must complete a daily record, showing the hours he has worked, particulars of journeys be has covered, the goods he has carried, etc."
Log Sheets as a Useful Help in Costs Recording "Yes," he answered, " I do know that, although "I haven't yet seen these log sheets."
"Well, you will find that there is provision on them for entry of the day's mileage and for the fuel and oil consumed. Indeed, I would recommend you to start your costs recordings,by an examination of the log sheets."
"Good," he answered, "you have solved one of my big difficulties. Now, I notice from the costs records thatwe have, that there has, hitherto, been a page of the costs recordings for each vehicle. Is that necessary? If seems to me to involve a lot of unnecessary work. Wouldn't it be sufficient for me to keep a record of total expenditure and in that way get at the figures for fleet-costs."
"There are, perhaps, a dozen reasons why individual vehicle records are necessary, but I will quote only one. You will find it convenient in making up your records to show, on the same sheet as the vekicle costs of operation, what it has earned during that week. Most hauliers like to keep a check on each vehicle, so as to he sure that each machine is pulling-its weight. You cannot dothat if you attempf to lump the expenditure in the way you said."
" Are you suggesting," he asked, "that I should take the total costs of operation for each week and set them beside the total revenue and that, if I do so, the difference between the two figures will represent the profit which that vehicle has earned? "
"That is what is in the mind of most operators when they are compiling their ,records." I answered. • " Then, from what I have so far seen of some of our records, he objected, " the figures are not of much use." .," What exactly do you mean by that?" I asked.
"Well," he replied, "I have just been looking down the records relating to one particular vehicle of which the boss is particularly proud, because he says it is costing so little for repairs.
" I looked down these fig-uses and I found thatithere is nothing entered-under three. of your items of running costs._ There is no expenditute on maintenance, tyres, and depreciation; the last-named, incidentally, has always been treated in our office as a standing charge. In consequence, that vehicle is making big profitv.
" Now, another vehicle of the same type has, during the past four weeks, had a considerable amount spent on it for repairs, and has had a new set of tyres. As a result that vehicle, during those weeks, has been rim at a loss— and a considerable loss at that. There seemed to be some thing wrong there, something which I, in my system of costs recording, would like to eliminate."
" I have definite views on that matter," I said, "and in explanation would like you first of all to appreciate this point. Of all the items of operating costs which you see set down in The Tables, only three—expenditure on wages petrol and oil—are what might be called current. All the others occur comparatively infrequently.
" You pay your Road Fund Tax only once a year and your insurance premium at the same intervals. Your rent and rates are probably paid quarterly. Interest is not an expense at all. It is merely a booking item; and the same with depreciation. The effeet of the item depreciation is
felt, perhaps, in anything from three to six years, that is, when you buy a new vehicle. You may buy a set of tyres only once a year, and the heavy expense on maintenance comes at tang intervals.
An Important Factor that Must Be Remembered
" That peculiarity of vehicle operating costs is most important and is the one thing you must have prominent in your mind when you are planning your method of costs recording. It is important that, in any system you adopt, you -should make some provision whereby none of these items can be overlooked. If, in any week, there has been no expenditure on any particular one of them, then you should include an estimated amount.
" But it is not of much use to try to' discuss this matter without some example of how to do it. Perhaps the best thing we can do is to sit down and try to draft a simple form of: recording costs of operation."
" Wait a minute," he said, " before you do that 'there is still one more question I would like to ask. What about establishment costs? In the introduction I see you say that, in arriving at hauliers' figures for charges, e s ta bli sh m en t costs are added to the vehicle standing charges and a percentageprofit superimposed upon that total. What are establishment costs and how do I indicate them? If I am to have a true figure for the net profit which each , vehicle is earning per week then I must include provision for establishment charges in each -weekly statement of 'expenditure. Do you agree? "
" Certainly, and I propose to deal with establishment. costs at the same time as I indicate to you how you should plan your method of cost recording." S.T.R.
(To be mama)