Make an ESTIMATE of Your COSTS I N discussions with newcomers
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to the industry which have been reported in two brief series of articles recently, it occurred to me to devise some method whereby the operator with no inkling of vehicle costs could establish data which would keep him informed of the all-in cost of operation, although for the time being he was not spending at that rate.
During those discussions I had difficulty in persuading the operators that the provision recommended for future cost of maintenance and for depreciation was not excessive. It seemed to me that a form of budgetary control was required. This would serve a double purpose. It would ensure that the haulier was under no misapprehension as to his total operating costs and, at the same time, allow him to meet his expenses as they arise by providing the necessary fund.
An Inescapable Reminder
My idea is to present to the operator a form or forms embodying estimates of the operating cost of the particular type of vehicle that he is using. With the forms before him and some argument to establish the accuracy of the figures embodied—which must still remain estimates—he will at least have less excuse for quoting uneconomic rates than he has at present.
The forms must be as simple as possible. They should deal with the running costs, itemizing first as current expenditure fuel and oil—supplies for which the operator pays directly and at frequent intervals. Besides these and, in a way, separately entered, are the expenses which are not so frequently brought to notice. In the case of the running costs, these items are tyres, maintenance and depreciation.
Standing charges can similarly be divided. Current expenditure occurs in respect of wages and garage rent; occasional expenditure on Road Fund licences, insurance and interest on first cost.
The primary object is to make the haulier at once aware that he must face these occasional expenses. The second is that he should provide for them by allocating each week some proportion of his receipts to a fund which, for the sake of simplicity, I have called a sinking fund. This must be reserved and used only for those items of expenditure. Tables I and II indicate the kind of estimate forms I have in mind. Table I deals with running costs and Table II with standing charges. There is little in either form which needs explanation. One of the objects is simplicity, and another B14 is the application of these forms to different types of vehicle. "Later I shall show how the figures thus provided can be used as a basis for making proper quotations. As I am writing for the inexperiencid haulier, and as he is invariably apt to under-estimate his future expenditure on such items as maintenance, tyres and depreciation, 11 propose to prove my figures, so far as is possible, as I go along.
I am assuming that the vehicle with which the operator is concerned is a 5-ton lorry with platform body and detachable sides. I have chosen this model because it is popular with the class of haulier who is most in need of the help that these articles are designed to give.
First cost is taken as £585, complete with lyres, and the price of a set of tyres is placed at £85, so that the net capital value of the lorry is £500. The cost of the tyres is deducted because, in making an estimate of the cost of operation, or in compiling figures for costs, tyres are entered separately. If we did not deduct the price of the tyres from the initial cost of the lorry, we should be paying for the tyres twice over.
Referring to Table I, the first item is petrol. A reasonable estimate of mileage per gallon is 11. Dividing 11 into Is. 10(1., the price of a gallon of petrol, a figure of 2.00d. is reached for the cost of fuel per mile. This is set down in the appropriate place on the form.
I have assumed that lubricating oil is consumed at the rate of 720 miles per gallon. If the oil costs 6s. per gallon, 720 m.p.g. equals 1/10d. (0.10d.) per mile for oil.
Oil Consumption Fallacy
I know from experience that here I shall begin to meet arguments from newcomers, especially those who are having their first experience of a new vehicle. They will point out that they obtain much better results—perhaps twice.as many miles to the gallon. To take their figures would be to overlook two factors of importance.
First, it is more likely that they are ignoring the fact that every 2,000 miles or 3,000 miles it is recommended that the crankcase be emptied and replenished. .As much as three gallons may have to be put into the crankcase. If I take 3,000 miles as the period, there will already have been used for day-to-day replenishment (equal to the haulier's own figure of 1,500 miles per gallon) two gallons. Add the three gallons for filling the crankcase when the change of oil is made and there is a total of five gallons used in 3,000 miles, representing about 600 m.p.g. In addition, it must be remembered that as the vehicle ages the consumption of oil will increase. My estimate of a gallon per 720 miles is moderate and might fairly be increased.
These two figures of cost are, for my present purpose, least important, for, despite all that I have just stated about misunderstandings concerning oil consumption, even the most inexperienced haulier cannot overlook them. He is buying these materials from day to day. In Table I these two items are referred to as "(a) Current Expenditure" and the total, set out properly on the form, is 2.10d. per mile, There are, as I have so often stated, 10 items of operating cost, and eight remain to be considered.
Of these 10 items, five are running costs and five are standing charges. The three items of running costs remaining are expenditure on tyres, maintenance, and on provision for depreciation. These are the things which the novice in vehicle operation is apt to under-estimate and often overlook altogether, and in Table I I have entered them under "(b) Sinking Fund (for future expenditure)."
Tyres Cost Id. a Mile It has already been agreed that the cost of a set of tyres is E85, If they last for 20,000 miles, the cost per mileeasily ascertained by dividing £85 by 20.000--ts within a small fraction of ld, per mile. In the light of present and immediate future experietice, it is possible that that 20,000 miles may be an under-estimate. In the near future, 24,000 miles may be the expected life: For the time being, it is as well to be on the safe side and take the figure of 20,000 miles as a basis. .
The operator should take particular care of his tyres, making sure thatthey are always properly inflated, that stories and flints which are embedded in the tread are removed periodically and that wheel alignment is occasionally checked. In .those circumstances it is reasonable to expect an increase in tyre life of 50-100 per cent.
The next figure is one which always gives rise to controversy. It did so in the discussions which I have recently reported. I refer to the estimate of the probable cost of maintenance. In order that the operator may check my figures, I have again produced in Table ill a special estimate of maintenance costs as applied to a 5-ton lorry of this type.
I list a series of operations, the mileage interval at which they may be assumed to need carrying out, and the cost. In the fourth column that cost is reduced to the basis of 1,000 miles. In that way I get a total cost for maintenance per 1,000 miles of £7 4s. 10d.. or, dividing that by 1,000, 1.74d. per mile.
In connection with this Table, I have had one or two queries which I might as well deal with now. It will be noticed that for engine overhaul a figure of £40 is quoted and at 50,000 miles there is provision for a complete chassis and body overhaul, which again is charged at only 140.
have been asked how is it possible to have a complete chassis overhaul which must, in the view of my querists, include an engine overhaul, yet cost no more than overhauling the engine itself.
The answer is, of course, that the engine overhaul is assumed to take place every 25,000 miles and is charged for so that the cost is excluded from the price of the chassis and body overhaul. if I were to include it, I should be doubling up the cost of engine overhaul.
I admit that the figures in Table III are, in a sense, maxima. They assume that no washing, polishing or greasing is done by the driver, also that the operations are carried
out by the local garage, and not by the proprietor of the vehicle himself. Incidentally, it is curious to note that, with the exception of engine and vehicle overhauls, the amount per 1,000 miles for washing and polishing is the biggest item in the maintenance of a commercial vehicle. The figure included provides for one good wash and polish every 400 miles, an average week's work for all long-distance vehicles.
The last figure in Table I is depreciation. _ That is based on a life of 100,000 miles. ' Froth the original net cost, less tyres, of £500 I deduct What i called the residual value, which is an estimate of whin the -OPerator will obtain for the machine when he sells it at.100,000.miles.I take that residual value to be £50. I am thus left with a figure of £450 on which to calculate depreciation. Dividing £450 by 100,000 miles gives me 1.08d., which is entered in Table for that item.
It will be noticed that the total of the items of the sinking fund is 3.82d. and the total running cost per mile is 5.92d.
The point I wish to stress in connection with the three sinking-fund items is that the -wise operator will set apart a sum of money each week equivalent tb 3:82d. per Mile run against the time when he.has.ta spend money on' tyres and maintenance and the purchase of A new vehicle becomes imminent. ln that way he will not, during the period when he is not called upon for heavy expenditure in one of these three directions, imagine that the sum which he is earning. and should in part be debited to these accounts, is profit.
S.T.R.