In the article "What it costs to run" in the
Page 59
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Farm Transport Supplement issued with CM November 24, you show interest charged on the initial outlay of the vehicle. I suggest that interest should be charged on half the capital employed if one depreciates the vehicle by the straight line method. Also. I suggest wages should not be charged as a standing cost. What are your comments?
AAs in agriculture, road transport is
largely made up of small units and 85 per cent of all operators have five vehicles or less. Consequently it is imperative that any costing system recommended for their use should be as simple as possible, consistent with reasonable accuracy. Even then it is only with the greatest difficulty that many small operators can be persuaded to undertake any proper costing at all.
While recognizing the point you make re.. garding the theory of charging interest, few small operators would make adequate allowance for depreciation and also re-invest the accumulative funds as they went along. Many, in practice, would use it as working capital.
Regarding wages, in theory one could standoff a driver when there was no work available and so contend that wages were a running cost. But in the current labour market this would not be a practical proposition for which reason wages are therefore reckoned as a standing cost.
However, an elaboration of this particular item would be to include the amount of wages paid for the basic working week as a standing cost (as is already done) and then to include any overtime as a running cost. But here again it is doubtful that many small operators would go to this trouble. Moreover, the effect of this additional procedure on the ultimate operating cost would be relatively small.