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Management matters

17th May 1968, Page 79
17th May 1968
Page 79
Page 80
Page 79, 17th May 1968 — Management matters
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Which of the following most accurately describes the problem?

Combined costing operation

A CHANGE in the costing system used by removers is vitally needed. But this cannot be a "do-it-yourself" operation—the removal trade should call in experts for their advice.

This is the crux of the advice given by Mr. G. A. Bartup, director of Trevor Williams (Removers) Ltd., Hereford, at the annual conference of the National Association of Furniture Warehousemen and Removers in Leicester last week. Because of the current importance of both costing and charging— following the strictures of the Prices and Incomes Board on this subject—I am reporting the paper fully here.

At the outset Mr. Bartup reminded delegates that the NAFWR had produced recommended charges in the form of their Red Book and these had proved useful in educating members as to economical charges although certain aspects were subjeet to criticism. Had members adhered to the charges on local and journey work, the majority of businesses would have made a reasonable profit.

Mr. Bartup said the figures then produced were as accurate as possible despite the handicap of almost non-existent general trade statistics—an all-too-common complaint generally in the' road transport industry. There was an insistence by the costing committee of the NAFWR that figures should be taken from the known facts as far as possible although a number of criteria had to be used particularly with respect to unremunerative time and the addition of a percentage to cover establishment costs and profit.

But in many respects the costing committee had beanne a "charging" committee. This was not surprising as costs were the basis of charges and it was not easy to consider the one without noting the effect of the other.

But following the pronouncement of the Prices and Incomes Board on road haulage rates generally, it seemed obvious that the practice of recommending increased rates

automatically on increased costs would be frowned on and the publication of charges ceased. As a result members had been denied the help that they were accustomed to receive from their Association. This had been to members' disadvantage in coping with continually rising costs and also to the disadvantage of their clients through declining standards of service which must inevitably follow financial difficulties. He was sure this was not the intent of the Prices and Incomes Board. Nevertheless this had been the effect of the Board's policy on an industry made up of so many small units.

Therefore it now seemed obvious that the work of providing their own costing must now come from individual members despite the reluctance of many to keep records. Indeed the costing committee had always sought to promote this but now it was essential; guidance in this field must henceforth be one of their main functions. Efforts now had to be made to evaluate establishment costs and this, together with their apportionment, brought the need for inevitable changes in their present system.

Six needs

Mr. Bartup then enumerated six needs from a costing system: It must show all costs as far as possible; be as simple as possible ("we are removers not accountants"); contain as few assumed facts or criteria as possible; be readily adaptable to meet changes in costs; be sufficiently flexible to cope with various types of operation and be capable of being easily applied to a charging system.

Removers' costs fell under four separate headings; vehicle running costs; labour standing costs; vehicle standing costs; establishment costs. Additionally if charges were being considered there would be the item of profit.

Determining establishment costs should not be too difficult but it would be necessary to apportion the costs between the removal or vehicle operating part of their businesses as opposed to warehousing and other activities. Having apportioned these costs, individual firms would find it simple to express them as a percentage of other costs, i.e. running and standing costs.

This percentage would then be added to the basic costs to provide either a total cost per vehicle hour, per man or per mile. Alternatively estimates could be worked out as the basic cost and a percentage of the total added to the establishment costs to find actual costs with a percentage added for profit. This was similar to the present costing system except that every firm would be expected to find its own percentages for establishment costs and profit instead of adding a fixed percentage of 50 per cent.

Another method, Mr. Bartup continued, would be that having apportioned establishment costs to "removals" as stated earlier, members would then allocate a proportion to vehicle standing costs and labour standing costs only in the ratio, say, of the basic costs of the vehicles and for men. A third alternative would be to take the whole of the "removals" apportionment of establishment costs to the labour standing charge.

Consideration was then given to these three methods in relation to the six costing system requirements previously enumerated. The first of the methods, Mr. Bartup admitted, could necessitate rather involved calculations, nor was it readily adaptable as any changes in costs would upset the proportions. Similar limitations applied to the second method but all six requirements were met relatively simply when the third method was adopted.

However, the costing committee felt that this last method would upset the existing price structure of the trade and Mr. Bartup then produced the following figures to indicate the differing results obtained by employing the three methods. In calculating these comparative charges he based his figures on an average wage of £18 10s for a 50-hour week, 2.5 men per vehicle, a vehicle cost of £2,150 (without tyres), 18,000 miles per vehicle per annum, an establishment cost of £500 per man and a profit margin of 20 per cent on costs or 161 per cent on selling price.

Reckoned as a charge per mile the first method gave a figure of 17.18d, the second 14.68d and the third also 14.68d. Expressed as a charge per man per hour the relative figures were 16.9s, 18s and 18.9s while a combination of a van and two men per hour at 28 miles per hour resulted in a charge of 81.28s, 78.2s and 77.73s.

To enable members to do their own costing sums the Association produced a form similar to the one circulated to conference delegates. This was made up of four sections: establishment costs per annum, vehicle running costs, vehicle standing costs (per annum) and labour costs.

Guidance

Dealing with the first section, this contained a variety of items numbered from El to E21. While many items were self-evident Mr. Bartup acknowledged that some members might need guidance on others. Thus the figure for "management salaries" should include salaries of managers and/or where management was carried out by a proprietor or working directors, the figure which it was estimated a manager and staff would have to be paid to carry out those duties. Under item EIO running costs for cars used in the business were recorded. This included excise licence at the new rate of £25 per annum, plus insurance and depreciation charge at 20 per cent of the present-day replacement cost. To this was added the cost of fuel oil and repairs.

Establishment cost E15 concerned insurance. This, Mr. Bartup explained, should include all premiums for the insurance of office buildings and contents, employer's liability insurance, public liability insurance, sickness and accident insurance and insurance of money. But it should not include premiums for vehicle insurance, goods in transit insurance (where premiums are recovered from customers), and other insurances such as those relating to warehouse and other property. Item 19 concerned hire charges of office machinery and equipment including the rent of postal franking machines, vending machines, recording systems, etc.

The vehicle running costs forms contained 17 items. Items V6 to V12 were concerned with the calculation of depreciation. From the present-day replacement cost of the vehicle there was first deducted the cost of a set of tyres and then the estimated value on the vehicle after seven years, so giving a figure for total depreciation over seven years. From this was obtained the depreciation per annum (V11). Half of this figure was taken to vehicle standing cost and the other half divided by the number of miles per vehicle per annum to give a depreciation cost per mile.

The prime cost per mile was then obtained from the addition of the previously calculated items. To this was then added the figure recorded for item V14—wastage. This was the estimated percentage of total mileage which for various reasons the operator of the vehicle received no remuneration.

The form for vehicle standing costs per annum contained 11 items. The item S3insurance—represented current comprehensive insurance on a vehicle. It was recommended that any reductions for voluntary excess should be ignored as the operator should be considered his own insurer for such amounts.

Item 85—packing materials—was included to record the annual costs of replacements of packing materials, webbing, etc. Likewise in the following items—depreciation of vehicle equipment-10 per cent of present-day replacement costs of equipment such as trolleys, jacks and sack trucks was recorded.

In calculating labour costs to record on the fourth form, total wages for 50 hours per week per man were included which with employer's contributions to national insurance gave an average weekly prime cost per man. To this was added the annual cost per man of aprons, jackets and laundry.

Regarding establishment costs per man per annum (L8), Mr. Bartup commented that if the establishment cost form had not been completed a provisional figure of £600 per man should be entered here. To obtain the average cost per man per hour to record in item L10 it was recommended that the figure recorded for L8 should be divided by 1950, the number of remunerative hours per annum the costing committee considered would be reasonable for an efficient operator after allowing for statutory hours and seasonal fluctuations.

But the crucial question, Mr. Bartup concluded, was whether members would use these forms. He certainly hoped so because inadequate costing was the key to many of the troubles besetting the removal trade. An error of one per cent in costing could make £40 to £50 difference per vehicle each year. Consequently the cost in time of completing the form or of obtaining an accountant's advice could easily be repaid. But whatever was decided, it was a matter of the utmost urgency.

Moreover, they must do more in the future. They should instigate costing research and thought should be directed to providing a uniform accounting system and consideration given to providing similar forms for warehousing.


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