Know If Your Vehicles Arc Paying Their Way
Page 52
Page 53
If you've noticed an error in this article please click here to report it so we can fix it.
FVERY operator must know the cost of running his vehicles if he is to derive the maximum benefit from 4
their revenue-earning capacity. To do this it is advisable to record the cast of each vehicle separately. But before describing the appropriate sheet on which it is recommended this should be done, I will give a brief summary of the basic principles to assist those not familiar with vehicle costing.
The operating cost? of a vehicle are usually sub-divided into standing charges and sunning costs. As the name implies, standing charges are those costs which are fixed and have to be met whether the vehicle is used or not. They do not vary with mileage And sconsist of the following five items:—licences (Excise, and carrier's), wages (including National Insurance and non-statutory employer's liability insurance contributions), rent and ratei, insurance and interest.
In • contrast to standing charges, running costs vary directly with the mileage operated. They also consist of five items, namely, fuel, lubricants, tyres, maintenance and depreciation.
-A haulier operating a vehicle for the first time immediately becomes aware of three items of current expenditure, namely, fuel, lubricating oil and wages. The heavy expenditure on tyres and repairs which will eventually have to be met may not necessitate any immediate payment.
False Impression
It would be wise, however, to make provision for that expenditure before it arises, as otherwise funds might not be available to meet it. To do this it is necessary to estimate these two items of expenditure and include them in the total of operating costs, as otherwise, when comparing this total with revenue, a false impression would be obtained.
A record of the actual cost of tyres and maintenance must also be kept so that eventually the original estimates can be compared (and adjusted if necessary) with the figures obtained from actual operation.
Any costs which cannot be charged to the 10 items already specified should he entered under thc heading "Establishment Costs." These can vary considerably with individual circumstances, and are those costs incurred in running the business (or department) as distinct from costs directly chargeable to the running of individual vehicles.
A sample Vehicle cost sheet is shown above. Although familiar to ,regular readers, it will, no doubt, appear formidable to newcomers, but with a little practice only a few minutes or so per week are required to complete the entries for one vehicle, provided it is done regularly.
Before the weekly entries are made on the vehicle cost sheet, the appropriate data should be inserted opposite the c.14 items shown at the top of the sheet. Under the sub-heading "Vehicle Data," will be found items relating to vehicle identification, unladen weight and maximum payload. together with purchase date and price, all of which should be quite readily obtainable from the registration book, manufacturer's specification or purchase invoice. The last item in this group is the estimated life of the vehicle in terms of miles, and will vary not only in relation to the type of vehicle but also to the conditions of operation and maintenance.
The first three items under the heading" Tyres "—size, number per set arid cost per set—should also be readily obtainable, but again the estimated life will vary according to conditions.
Tyre Expenditure
Resulting from the data so far entered it will now be possible to make the necessary calculations to complete the three entries under the heading "Estimated Cost per Mile," In the case of tyres, this would be obtained by a simple division of the cost of a set of tyres (excluding the spare) by the number of miles their life has been estimated.
In calculating the depreciation per mile, care must be taken to ensure that the cost of the tyres is deducted from the cost price of the vehicle before this net total is divided by the figure shown opposite the item—" Estimated Life (Miles)."
Under the sub-heading of "Standing Charges," the entries opposite the item tax refer to the Excise tax or licence duty, and opposite insurance to the premium payable on a comprehensive policy. Interest charges are based on 3 per cent. on the total cost of the vehicle.
For the newcomer, establishment costs, like maintenance costs, will have to be an accepted estimated figure in the first instance. Probably no item of vehicle costs varies so much from operator to operator as establishment costs, not only in the total amount but in the number of items included.
Because the items under the heading "Standing Charges" relate to actual costs, they should be divided by 52 to obtain a weekly figure. Any item that does not fall within the five standing charges (licences, wages, rent and rates, insurance and interest) or the five running costs (fuel, lubricants, tyres, maintenance and depreciation) must be entered under establishment costs.
We have dealt so far with the headings to the vehicle cost sheet. Although some of these require calculation, once completed they will require no further attention, except for reference, until the completion of 52 weekly entries.
These are made in the columns 1 to 23. Here again it should be emphasized that the whole basis of the vehicle cost sheet is the policy of using actual costs when available, hut when these are not immediately obtainable estimates must be used in the meantime.
In contrast to the annual entries in the heaffings, the columns I to 23 must be made up weekly. Preferably the vehicle cost sheet should be of sufficient size to permit 52 weekly entries.If, however, this ideal proves impracticable, it should at least suffice for a half-year, otherwise re-completion of the headings would entail unnecessary clerical work.
After entry of the appropriate date in column 1, the total mileage, fuel and oil consumed will be entered in columns 2, 3 and 5, that information having previously been summarized from the daily log sheet on to the weekly vehicle sheet as described last week. The cost of fuel and oil is then calculated and entered in columns 4 and 6 respectively.
Tyres are now dealt with under columns 7 and 8. The total estimated tyre cost for any one week would be obtained by multiplying the actual mileage for that week by the figure shown as the estimated tyre cost per mile previously calculated in the heading.
Relevant Items
.Paradoxically, the entry under Tyres—Actual Expenditure" can prove the more difficult, at least, to commence. Care must be taken the fir,st week the vehicle cost sheet is in use to ensure that the cost of the set of tyres already fitted to the vehicle is duly debited. This amount, it will be recollected, was earlier deducted from the cost price of the vehicle before' the resulting total was used as a basis for the calculation of depreciation. Where an operator has only one vehicle, with tyre repairs and replacements undertaken by his local garage, entries under column 8 would merely entail transfer of the relevant items from the garage's invoices.
If several vehicles are operated, however, and tyres are interchanged between vehicles it will be necessary to put into operation a tyre record system to ensure actual tyre costs being fairly charged as between the respective vehicles. In the initial stage it will involve making out one tyre record card for every tyre, whether fitted or in stock, and whether new or retreaded. This admittedly involves considerable work to begin with, but subsequently only new purchases and transfers have to be recorded. These are comparatively infrequent and in contrast necessitate little clerical work.
Each card will be identified by the manufacturers' tyre number, name and size, which should preferably appear on the right-hand top corner to facilitate easy reference. The main section of the card should be divided by six vertical lines to form seven columns, six of . which should be of
approximately equal width. These should be headed (1) date, removed from (2) vehicle No. (3) position, fitted to (4) vehicle No (5) position, and (6) mileage. In the remaining larger column the cost of the initial purchase and subsequent repairs would be recorded, from which would finally be deducted the scrap price of the tyre.
The resulting total divided by the total mileage would then give the cost per mile, thereby enabling the total cost to be fairly proportioned between the vehicles to which it was fitted in relation to the mileage operated. Ultimately the estimated tyre cost per mile shown. in the heading of the vehicle cost sheet may. need to be adjusted to correspond
to these results. • •
In addition to providing data for use in costing individual vehicles, tyre records allow useful comparisons to be made not only between makes and types, but whether, for example, the fitting of oversize tyres is worth while.
Under the main heading of " Maintenance," as with tyres, the estimated cost of maintenance for the week is obtained by multiplying the actual weekly mileage by the estimated cost per mile, and is then entered in column 9. The actual expenditure on maintenance is divided between labour and materials in columns 10 and II, and totalled in column 12. The relevant information is obtainable either from the outside repairer's invoices or, alternatively, the operator's job sheets if he does his own repairs.
Calculating 'Depreciation
Depreciation is calculated in the same manner as estimated maintenance costs and entered in column 13.
Wages occupy a further three columns, namely the actual amount paid to the driver of that vehicle that week, the employer's contribution to National Insurance, and insurance contribution to cover employer's liability and industrial injuries. Regarding the latter item, whilst it is no longer a legal obligation prudent hauliers will continue to make provision.
Standing charges are next entered in column 17, having previously been totalled both yearly and weekly at the right side of the heading.
Total vehicle operating costs per week are then entered in column 18. These are obtained by an addition of the amounts already entered in columns 4, 6, 7, 9, 13, 14, 15, 16 and 17. A division of this total by the mileage for that week provides the cost per mile for entry in column 19.
To the vehicle operating costs are added the establishment costs previously allocated to the vehicle and shown under standing charges in the heading. The resulting total weekly expenditure is entered in column 21.
Then the revenue earned by the vehicle for the week is recorded in column 22, which, by comparison with the amount of total weekly expenditure shown in the previous column Will provide the amount to be entered in the last column of all, namely profit or loss.
In conclusion, it should be emphasized that most forms, at first acquaintance, appear far more complicated than they really are, and in actual use their completion takes far less time than reading a description of how it should be done. As with many other tasks, regularity and familiarity are great time-savers where form filling is concerned.
Though, understandably sceptical at first, the newcomer will be surprised how soon a vehicle cost sheet can. be completed after the first few weeks' perseverance. Nothing is more important than that he should know as soon as possible whether or not he is operating at a profit. S.13. .