Making a • Start in Costing
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FROM inquiries received at the Commercial Motor Show it is apparent that many small users are not completely conversant with either the purposes or details of the costing of commercial vehicle operation. I am therefore devoting this article to a brief description of the underlying principles and the reason for the division into 10 items of cost.
Vehicle costing is concerned with past, present and future operation. As distinct_ from thc running of a private vehicle, possibly for pleasure, a commercial vehicle, by definition, is acquired with the object of ultimate profitability, or as an efficient ancillary to the -particular industry or trade it serves. It is therefore both prudent and necessary first to investigate whether acquisition of a vehicle, or fleet, would be worth while, as opposed to employing other means of transport.
Where vehicles are already being operated, only accurate costing can measure their'day-to-day efficiency. Comparisons between results obtained previously within the fleet, or with standard references, such as " ' The Commercial Motor' Tables of Operating Costs," are essential.
Additionally, both the ancillary user and professional_ haulier will have frequent occasion to estimate likely costs on any future movement of traffic, and for this reason again it is essential to have complete records of previous operations as a guide to a correct assessment.
Where an operator is setting up in businesslor the first time, he would obviously have no previous experience of his own on which to base quotations to customers. In these instances, in particular, impartial tables are invaluable, and probably provide the only source of reference until he can make adjustments, if necessary, on the basis of his own experience under specific operating conditions.
A similar situation arises where an operator who has already had experience in general haulage is considering, for example, entering parcels delivery. In such circumstances, although he may have accurate records as to the cost, per mile, of operating vehicles, it will be unlikely that he could accurately gauge the number of parcels which could. be collected and delivered' during a working day. Only practical experience will determine the time taken to effect delivery from vehicle to customer, because this is so dependent on. such variable factors as theratio of industrial and residential consignments, as well as traffic conditions in his particular area. Here, again, the solution lies in accepting standard rates applicable in the district, until he can formulate a schedule of charges based on experience of his own operating costs.
Two major factors are involved in vehicle operation—time and mileage. It is logical to segregate the several items incurred in operating commercial vehicles into standing and running costs, As the name implies, standing costs. are incurred throughout the life of the vehicle, irrespective of whether it is in use or not.
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It is convenient to divide the standing costs into five items: (1) Licences; (2) wages; (3) rent and rates; (4) insurance and (5) interest. Because these 'costs are indicative of the time element in vehicle operation, they are shown as a cost per hour, per week or per year.:
For the purpose, of calculating charges it however; be
necessary to make allowance for any period during the year when the vehicle may be off the road, and so not earning revenue. Such reasons would Include drivers' holidays and major overhauls. Whilst, admittedly, this could extend to several weeks a. year, for the purpose of compiling " The Commercial Motor' Tables of Operating Costs" it is assumed that some endeavour will be made to coincide these periods; a 50-week year has, therefore, been adopted. Standing costs per hour would normally be dependent upon the statutory
period accepted for particular types of operation:. for example, 44 hours for goods vehicle and 42 for coach operation.
The item " licences" refers to the duty payable under the Vehicles (Excise) -Act, formerly the Road Fund Tax. A point to be noted,here is that, as the amount of duty payable on a goods vehicle is determined by the unladen weight, the standing cost per week in respect of this item would not always be directly relative to its, carrying capacity. This is in 'Contrast to passenger vehicle operation, where seating capacity is the determining factor.
In the case of haulage operators, wages will be based on-thestatutory RoadHaulage Wages Order current at the'. time.' Ancillary users will either make use of similar 'rates. or apply those 'appertaining in their own particular ,industry.
Whatever basic scale of wages is eniployed, it is important when calculating charges to ensure that allowance has been made for the substantial additions to wages which employers now have to make in respect of National Health 'contributions and employers' indemnity insurance:Although -there is now no statutory obligatiOn-abour this insurance, as with the former Workmen's Compensation Act, many employers find it prudent to make adequate provision in this respect. It is also' necessary to allow for holidays with pay by dividing the total annual wage bill, inclusive of all additions, by the number of weeks Worked It js appreciated . that many small. hauliers do not have Covered accommodation for -housing their vehicIeS, but it is nevertheless 'considered justifiable to provide for (-his item of cost as and when it is incurred. Allowance can be made under the item "rent and rates." •
The term " insurance "-is limited in this context to premiums covering the vehicle alone, any other expenditure on insurance being included in overhead or establishment costs. The premium payable in respect of the vehicle will vary with th area and type of operation, capacity and value, of the vehicle and whether third-party or comprehensive cover is provided Because a substantial outlay has been .incurred in the puteNse A a vehicle, it is considered reasonable to include in the ;landing cost some allowance in respect of interest on this :iutlay, which would otherwise have accrued. For the purpose A " The Commercial Motor' Tables of Operating Costs," this s .reckoned at 3 per cent.
In contrast to standing costs, it is convenient to calculate -unning costs per mile. Fuel is the largest of these five items A running cost, and is determined by a division of the Mileage lin by the number of gallons of fuel consumed. Whilst, trithmetically, this calculation is comparatively simple, it is lecessary to regularize the procedure of fuelling vehicles if the 4allonage recorded to each vehicle is to remain both accurate Ind free from undue complication.
Where vehicles return to base every night, it is common eiractice to top-up tanks. No difficulty arises here in marrying :linkage to fuel used. This is because, in this instance, fuel :ssued and fuel consumed are the 'same for all practical purposes.
Where, however, vehicles are either on long-distance or trunk work, and receive partial replenishment of tanks from other depots or agencies, it is necessary to ensure that the tanks are filled to capacity on a regular day each week. In the majority. A cases, this would be at week-ends when the vehicles return lo home base. The total amount of fuel then issued to such a vehicle throughout the week would approximate reasonably iccurately to the amount consumed and, as a result, provide a Fair basis on which to calculate fuel consumption. Any attempt lo calculate the amount of fuel actually consumed day-by-day in such circumstances, as distinct from totalling the amount issued, would prove impracticable.
Fuel Cost Must be Averaged
When calculating fuel costs it will also be necessary for aperators to determine an average price of fuel on which such costs should be based. This is because most fleet operators will purchase fuel at a variety of prices, owing to the effect of zoning and discount rates. As with other aspects of commercial vehicle costing, some compromise has to be made between extreme accuracy and the amount of time that can reasonably be devoted to clerical work. In this particular instance, calculation of the cost. of every fill-up at the Precise price would be expensive both in time and cost. It would add little, if anything, to the accuracy of the total operating cost.
Calculation of the cost of lubrication is again a comparatively simple matter of totalling the amount issued: it is a common mistake to refer to a rate of consumption which obviously does not take account of oil changes. When reckoning tyre costs, and assuming an individual tyre recording system has been adopted, it would probably be found convenient to allocate the proportional cost of every cover to the appropriate vehicle, whilst adopting some method of averaging the total cost of tubes and flaps throughout the fleet,
It is convenient when dealing with commercial vehicle costing to use the term " maintenance " to include washing, servicing and whatever repairs are necessary to enable the vehicle to be operated economically throughout its life. Because, however, washing and some of the lighter servicing, such as greasing. will probably be done on a time basis (for example, weekly), the maintenance cost per mile will be slightly higher when average weekly mileages are abnormally low. Retail delivery work could be an example wheresuch conditions apply.
For the purpose of compiling "'The Commercial Motor' Tables of Operating Costs," it is considered more appropriate to this type of vehicle usage to calculate depredation on
a mileage basis. In order to determine the proportion of capital outlay which it will be eventually necessary to write-off, the following :procedure is recommended: From the initial price of the vehicle is deducted the cost of the original set of tyres. This is because tyres are accounted for as a separate item.
Assuming that the majority of operators will be concerned with traffics which would not allow a policy of running vehicles until they were virtually of scrap value, it will then be necessary to make a . further deditetibn'appropriate to the estimated residual value. The balance is then divided by the estimated mileage life of the vehicle whilst in theoperator's possession. Here, again, such estimate Must not, be "relative to the class of vehicle only, but also to the type of work undertaken by the user. Obviously, an operator engaged on timed delivery of perishable foodstuffs to market would find it prudent, and probably ultimately more economic, to renew his fleet sooner than if he were moving less-urgent traffics on similar vehicles.
Total Operating Cost The addition of these five items—fuel, lubricants, tyres, maintenance and depreciation—gives the total running costs which, when added to the standing cost, yieds the total operating cost of the vehicle. In making this last addition, however, a complication arises because standing costs have been calculated on a time basis and running costs per mile. As a result, total operating costs can be given per mile or per week. Alternatively, they can be expressed as a combination of the two—a cost per hour plus a cost per mile relative to the actual mileage operated. This procedure is particularly useful where it is expected that there will be an excessive amount of standing time, or where information as to 'the conditions likely to apply is either unknown or insufficient to justify charges on a straight mileage basis. .Because the amount of standing costs per week remains the same, irrespective of the Use to which the vehicle is put during that period, it follows that where the total operating cost is calculated solely on a mileage basis,. the cost per mile will decrease as the average weekly mileage .becomes greater. This factor is often overlooked by many readers when asking for advice oncosts and charges... Although other.details Are given, indication of : weekfy Or annual •mileages is often omitted. Whilst this is understandable when the inquirer is either a prospective or comparatively new operator, with -no knowledge Of what his ultimate annual mileage will be, it is still necessary for some estimate to be' made because it has such an important bearing on ultimate costs. . As an example in the new •edition of "'The Commercial Motor' Tables' of Operating Costs," a 7-ton oiler averaging 400 'miles per week is shown as costing 16.97d. per mile to run. At 800 miles per week, however; the figure is decreased to 12.88d, with a further reduction to I2.12d. at 1,000 miles per week. . . . ..S.H.