THE ABC OF COSTING
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Start Now to Keep Records of
What it Costs to Operate
THERE is always the incentive, with anything new, to treat It well. It is like turning over a new leaf. That is the attitude which I am sure every purchaser of a new vehicle is willing to take. One of the ways in which that willingness may usefully be exploited is in connection with the keeping of records of operating cost : start as soon as the vehicle is put into commission and keep going.
The simplest method—simple in that it involves the operator in the absolute minimum of labour of figuring— is that for which provision is made in The Commercial Motor Operating Costs Record. I designed it especially with that idea in view, because I know that so many hauliers, and especially operators of only a few vehicles, have little time to devote to their books. Anything that can be done to make It easy for them to keep those books is worth doing.
Typical Figures. A specimen page from The Commercial Motor Operating Costs Record is reproduced with this article. It contains some typical figures of cost relating to two quite different types of vehicle engaged on entirely different kinds of work. Vehicle No. 1 is a 2-tonner, and, as will be apparent from the figures when I come to them, is engaged on local jobbing haulage of the class to which contractors to municipalities and county councils are 'accustomed. The other, No. 2, is an 8-tonner on long-distance haulage, covering a steady 960 miles per week.
I am going to explain how to arrive at these figures for cost. Begin by making a note of the following items :— Tax, insurance premium, garage rent and interest on first cost.
For the 2-tonner the tax is £30 a year, which is 12s. per week. (Note that it is sufficiently accurate, as well as convenient, to regard a year as having 50 weeks.) The insurance premium may be £25, that is, 10s. per week. I assume that the garage rent is 5s. per week.
B26 There is still the item of interest on first cost. To get at that figure, take the price paid for the lorry in the first place, say, £325, take away ,the price of a set of tyres, say, 225, and ieckon interest at 3 per cent, per annum of the balance, £300. At 3 per cent, that is £9 per annum, which is 3s. 6d. per week.
Add those four items together; the total is 30s. 6d. That sum is entered near the bottom of the page opposite the line "tax + insurance ± rent + interest." The important point to note is that this calculation needs to be made only once, because the figure will probably be the same every week throughout the life of the vehicle, just requiring to be entered up once a week.
Next arrive at similar figures for tyres, maintenance and depreciation. If you have not had any experience on which to base your estimates of these items, you will find the data in The Commercial Motor Tables of Operating Costs. Just to make this story complete I have worked them out.
Take a set of tyres costing £25 as lasting 20,000 miles. If you multiply £25 by 240 to bring it to pence and divide by 20,000, the answer is .3d. For depreciation the same method applies. Take the net cost of the vehicle, E300, multiply it by 240 to bring it to pence and divide by, say, 120,000, a fair estimate of its mileage, including some allowance for what would be obtained for it in part exchange. That figure is .6d.
Now maintenance, according to The. Commercial Motor Tables of Operating Costs, costs .77d. per mile. The owner-driver and small operator are often able to save on that item by doing a certain amount of cleaning and adjustment themselves, or by arranging for the drivers to do it. They can take something less than the figure in the Tables, say, in this instance, .6d. ,
The total of the three is 1.5d., that is to say, lid. per mile. That item, too, is entered in the lower half of the page where is written "cost of tyres, maintenance, depreciation @ This calculation again needs to be made only once and possibly will not be required again for a couple of years.
For the 8-tonner the resulting figures are : —For tax, insurance, rent and interest, 64s. per week; for tyres, maintenance and depreciation, 3d. per mile. The worst is now over, as regards calculation, and I come next to the routine work of entering each day the mileage, hours worked, fuel and oil consumed. Figures for these items, as everyone knows, are available on the drivers' log sheets, or should be. All that hag' to be done is just to copy them out once per day. At the end of the week the four items are totalled, as shown in the example, and then, once per week only, the following simple calculations are necessary :— First, as to expenditure on fuel, the multiplication of gallons consumed by price per gallon gives that item. The same procedure applies to oil. Pints consumed multiplied by price per pint represents the expenditure on oil in that week. Then the number of miles multiplied by the figure for "tyres, maintenance and depreciation" gives the estimated expenditure on those items.
There we have all the running costs. They must be added together. to produce the total running cost. In the sample page reproduced herewith, fuel stands at 15s., oil at 8d., and tyres, maintenance and depreciation (179 miles at lfd. per mile), 22s. 4fd.; total, 388. Ofd. For the standing charges it is necessary only to add wages and the total is there. In this case it is 84s. 6d.
In a good many instances, the reader will need to go no further, beyond adding the standing charges and running costs to discover what is the total cost per week for that vehicle. In the case of this 2-tonner it is £6 2s. 64d. If he checks that sum against what he has received for the hire of the vehicle, the operator will know whether he is making a profit or not. If he be actually engaged on municipal work and receiving 2s. 6d. an hour, his revenue will be £5 2s. 6d., and if the figures he has collected do no more good than make it clear to him that 2s. 6d. per hour is insufficient for the hire of the vehicle, they will have served an excellent purpose.
Even at 3s. per hour, the revenue is only £6 3s„ showing a margin of 51€1. to cover, the cost of running his business and earn a profit. Actually, for the business to be worth while at all, he ought to inake at least £.8 10s. per week, and preferably more than that.
I will not dwell -upon the figures for the 8-tonner, but
rather turn to one or two other matters of importance.
Next to the simplicity which characterizes this method of costing, the most important advantage is that the operator knows from the first week of use of his vehicle what it is going to cost him throughout its life. There is no risk of his taking expenditure on fuel and oil as being all that matters. It is true that the items "tyres" and " maintenance " are only estimated., but that is all that is possible, in any event, for quite a long time.
At the back of the book are some ruled pages on which actual expenditure on these items may be entered, so that at the end of a year, or maybe two years, the operator can check back and see whether the estimates which he has been using are sufficiently accurate.
Some warning is necessary, first as regards tyres. In entering tyre costs at the back of the book, the operator begins at once by debiting the vehicle with the price of that set of tyres which is on it when it is new. Secondly, as regards maintenance, he puts everything down, even the smallest item, and does not forget what he pays from time to time for odd jobs and any material that may he
bought for it, no matter how small. S.T.R. •