A Rule of Thumb A Simple Method of for COSTING
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Minimum Charges for Haulage IT is fitting to consolidate what has been done in the two previous articles in this series by taking a set of figures from the new issue of -The Commercial Motor" Tables of Operating Costs, now available. As.an example, I will take the case of a 6-ton oil-cngined vehicle covering approximately 500 miles per week. First take the five standing charges which are set down in the Tables on a weekly basis. We begin with Road Fund tax, which is assumed to be £35 per year, the vehicle coining within the 3-ton unladen weight limit. Thirty-five pounds a year is 14s. per week.
Then take wages, the amount for which is £5 16s. Actually the standard wage for a 44-hour week for the driver of a 6-tonner is £5 Gs. The £5 16s. provides for the 4s. 2d. per week contribution to National Insurance and 5s. 10d. towards holidays with pay.
Rent and rates for the garage form the next item and these are taken to total 10s. per week. Obviously, that amount will differ according to locality and according to the arrangements the operator can make.
Some alteration has to be made to the next item, insurance, for which the amount of 7s. 3d. is quoted It is carefully explained, in the introduction to the Tables, that the 7s. 3d. is what a C-licensed operator would have to pay. Insurance costs the haulier much more than that and the figure I am taking in this article is 14s. 9d.
Finally comes the amount of interest, 13s. 3d. per week. Thai is interest on the capital invested in the vehicle, at 3 per cent. per annum.
£8 8s. Spent Before a Wheel Turns
The total of all those is £8 8s. As was stated in the first article, the operator should appreciate that he has to find that sum, in effect, before the vehicle has turned a wheel. When it does begin to run it incurs the running costs and we come now to the five items covered by that term The amounts are given in pence per mile and are, for fuel. 1.12d.; lubricants, 0.18d., tyres, 1.05d.; maintenance te), 1.1Id.; depreciation, 1.88d.; total, 5.34d.
The operator who has a copy of the Tables before him \ will note that I have omitted maintenance Id). Here again.
I must recall that in the previous article I have accepted as a fact that provision is made for the driver or owner-driver to carry out certain maintenance operations such as washing, polishing, greasing, oiling, minor adjustments and so on, and that is what is meant by maintenance (d).
We now have two important figures, £8 8s. per week as the total of the five standing charges and 5.34d. per mile as the total of the running costs. The total cost of operating the vehicle is made up of these two. In the case of a vehicle running 480 miles per week, the total of the running costs is 480 times 5.34d. and if the operator takes the trouble to work that out for himself he will find that it comes to £10 13s. 6d. The total cost of operating that vehicle for a week, running 480 miles, is therefore £8 8s. plus £10 13s. Gd. which is £19 Is. 6d. It is essential to emphasize that that is the cost of operating the vehicle over a 44-hour week.
Another useful way of employing these figures is to reduce that £8 8s. per week to a cost per hour. That is achieved by dividing £8 85. by 44, the number of hours involved, and the result is 3s. 10d. That gives us another pair of useful figures, 3s. 10d. per hour and 5.34d. per mile, from which it is possible to calculate the cost of any job.
Now comes a question which every small operator :s liable to ask. I dealt with this same subject in the issue of "The Commercial Motor" dated September 24 but in another way. Here it is again, simplified.
The operator may say, "I do a week's work in which the vehicle runs 56 hours. if I reckon the cost of that at 3s. 10d. an hour and 5.34d. per mile, surely I shall lose, B14 because there is no allowance in that 3s. 10d. for overtime rates?"
The answer is that there will be no loss, and even a gain, for what is paid in overtime in the form of wages is saved by economies in the other four standing charges. Let us go into it, First, take the cost, assuming 56 hours at 3s. 10d. and 480 miles at 5.34d. Fifty-six times 3s. hod, is £10 14s. 8d. We have already calculated the cost of 480 miles at 5.34d. as being £10 13s. 6d. so that the total cost according to that method of reckoning is £21 8s. 2d.
Now let us work it out the other way, adding just the amount to be paid for overtime. The other four standing charges will be the same as 1 have already said, that is to say there will be licences, 14s.: garage rent, 10s.; insurance, 14s. 9d.; interest, 13s. 3d.; as before. Then comes the usual £5 6s. per week for the 44-hour standard rate and finally the overtime which actually works out at El 4s. The total is thus £9 2s. lid. and if that be added to the running cost of £10 13s. 6d. as before we get a total of £19 15s. 71d.
Better Off by £1 12s. 61d.
Now that is the real cost, whereas by the other method which I recommend, the cost has been set down at £21 8s. 2d. If, therefore, the operator charges as I recommend on the basis of 3s. 10d. per hour and does not bother his head about the fact that he is paying overtime, he will be £1 12s. 6id. better off.
If 3s. 10d. per hour be charged for whole-time work then as soon as 44 hours have been completed all the standing charges including the standard wage have been wiped off. For the rest of the time the operator is involved only in paying at the rate of either time-and-a-quarter which is 3s. °Ad. per hour or time-and-a-half which is 3s. 71-70. Only if the work happens to be done on Sunday is it
necessary to make amendment to the figures. '
The haulier has other expenses besides those 10 items of operating costs. He has to pay for light and heat, for postage, telephones, cost of running his car if he uses a car in connection with his business, his own wages if he acts as manager and so on. For our present purpose I am going to make use of a rough method which can be very satisfactory if the operator has no knowledge of his establishment costs. This method is to add a percentage to the vehicle operating costs and I suggest that he adds. 50 per cent
£6 6s. for Eight-hour Job
Referring to the example of a job which lasted eight hours during which the vehicle covered 120 miles, I calculated the cost of that to be eight times 3s. 10d. which is £1 10s. 8d. for time, plus 120 times 5.34d. or £2 13s. 5d. for mileage. total £4 4s. Id. The operator should add 50 per cent, to that which is £2 2s. and be should charge £6 6s. for that work.
Here we can take one step further and convert OUT time and mileage figures for cost into time and mileage figures for charges. All that we have to do is to add 50 per cent. to the 3s. 10d. which gives us 5s. 9d. per hour and add 50 per cent. to 5.34d. which gives us almost exactly 8d. per hour. Those figures can be used to calculate the rate for any job
Here is an actual example. An operator asked me what he should charge for circular trips of 300 to 600 miles involving two or three nights out.
I assumed that the 300-mile journey might take, say, 20 actual working hours and might involve one night away from home. The charge will be made up of 20 times 5s. 9d. which is £5 15s. plus 300 times 8d. which is £10. The total
is £15 15s. To that we must add approximately 15s. expenses for the night out so that the total is £16 10s,which is Is. Lid. per mile.
Now suppose that the 600-mile journey involves 30 hours of actual running and two nights away, then the rate will be made up of 30 times 5s. 9d. which is 113 12s. 6d. plus 600 times 8d. which is £20. The total charge is thus £28 12s. 6d. and to that we should add £1 10s. for the expense involved for two nights away. The total charge thus becomes £30 2s. 6d. and that is just over Is. a mile. The operator could quite safely, therefore, charge Is. Id. per mile as a flat [NEC.
. At the end of each Table are given figures for time and mileage charges and 5s. 9d. per hour and 8d. per mile are' the figures given for the 6-tonner. The operator can quite safely use those figures for his charges and if he makes provision for extras such as the nights out, he will not be far out in any rate which he may quote.
Some years ago, however, I worked nut a simple method whereby tit:. haulier could determine his own figures at very little trouble to himself and could study them week by week to see what was his acival expenditure on vehicle operating cost, so that he could know what actual gross profit he was
really making by comparing the figures with his earnings. Two examples are given with this article, showing how that method can be applied in the case of a 6-ton oiler.
In the top part of the schedule is space to enter those things which vary day by day and week by week. The figures are on the tog sheets, or should be.
Take Table I. Note that there is first of all space to enter the date. After that are four columns, for miles run, hours worked, fuel and oil used. All those columns are filled in day by day and at the end of the week the total is taken for each. That is not a difficult task.
In the lower part of the table is provision for entering up all the 10 items of operating cost. For two of them, fuel and oil, we use the figures from the upper part of the table. There are 30 gallons of fuel at is. 9d. per gallon. which is 52s. 6d. as set down. Similarly 5,-4 pints of oil at Is. 6d. per pint cost 8s. 3d.
For the remaining three items of running cost the operator is recommended to take out' a figure from the Tables. He will get it from those already given above. namely 1.05d. for tyres, 1.11d. for maintenance, 1.88d. for depreciation. That is 4.04d. per mile. That figure be can use week by week without alteration so long as his mileage is round about 500. It may drop to 400, it may rise to 600, but so long as the average is about 500, that 4.04d. will do.
In the fourth line of the table he takes the figure of 4.04d. and multiplies it by 508 miles which the vehicle has done in the week, giving him 171s. Adding those three figures gives 231s. 9d. That is the total of his running costs for the week and if he wants to know what that is per mile he must divide it by 508. He will find that the answer is practically 541 Now we turn to the standing charges. The figures give 14s. for tax, 14s. 9d. for insurance, Ids for rent, 13s. 3d. for interest and the total is 52s., which is constant.
He will know what the wages are, because he will have paid them. I have put them at 172s. 101d. arrived at in this way.. First of all there is 106s., the bask rate for 44
Table I.
hours, then eight hours at 3s. 0,30d. which gives me 24s. lid„ and then Sunday Wise, eight hours at double time, 4s. ncl. per hour, 38s. 7d. The total is 168s. 8d. and to that we must add 4s. 2d., the employer's share of the National Insurance contribution, 'which gives 172s. 104d. Add those two amounts together and we get £1-1 4s. 100., which is the total of the standing charges for that particular week. if the operator wants to know what the charge per hour is, he must divide that by the 60 hours which are worked and he will get 3s. 9d.
There are two ways oT using these figures. The first is to take the total, that is to say to add the total of running costs, £11 1 Is. 9d., and the total of the standing charges, £11 4s. I04d., which gives us £22 16s. 70. If the operator subtracts that sum from his total earnings he will determine his gross profit. Please note the word "gross" because out of that he still has to pay his establishment charges.
Actually his total should be 50 per cent. more than that £22 16s. 74c1., that is to say it should be not less than £34 5s. If he earns much less than that he is probably not covering establishment costs and should put his rates up.
The other way is to use the figures as already described as time and mileage. At 3s. 9d. per hour and 541 per mile he should get not less than 5s. 8d. and 8d. for the work. that he does, that being 50 per cent more. This time and mileage method is the best for the jobbing haulier.
Table II is made up in just the same way as the other but applies to a different class of work, such as, for example. work for a municipality on contract. Here the hours are exactly 44, the mileage is low, only 184 per week. Now this brings another point forward. I gave a figure of 4.04d. per mile to cover tyres, maintenance and depreciation in the case of a vehicle covering 500 miles per week. Now if the operator will refer in the Tables to the running costs of a .vehicle covering only 200 miles per week, he will find that the depreciation is much more: it is 2.54d. per mile instead of 1.88d. per mile. I dealt with that aspect of depreciation when I was explaining how "The Commercial Motor" figures were cakula,ted. The bigger amount of 2.541 instead of I.88d. is necessary because it has to cover obsolescence as well as wear and tear. Instead of 4.04d. per mile we have 4.70d. for the third line of the lower part of the table.
It may be of interest to see what the operator should charge per hour for the hire of this vehicle. His total cost for 44 hours is £5 Os. 10d. for running costs and £8 2s. 2d. for standing charges (£13 3s.). Add 50 per cent. (£6 I Is. 6d.) and we have £19 14s. 6d., or 9s. per hour. S.T.R.