Cost Recording Made Easy
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T HAVE now dealt in detail with all the items of vehicle 1 operating cost, but in the system I have made no provision for the recording of another series of costs, almost equally important, but not relating to the cost of operating the vehicle, which, as I have so often emphasized, is something which must be considered apart.
In assessing his rates on a cost-plus-profit basis, it is essential that the operator be sure that he has included in his costs all his expenditure under all possible headings. He has not done so if he includes only vehicle operating costs, for, in addition, there are what are called overheads, administrative 'charges, or establishment costs.
Without trying to confuse the subject by adding yet another title to these costs. I try to ensure the reader's appreciation of what 1 mean when referring to overheads by describing them as the "costs of operating the business," so that, in assessing his total costs, he has to take into consideration, first, the operating costs of his vehicle, and, secondly, the operating cost of his business.
Allowini for Overheads
Moreover, to segregate the two, I have always insisted that in any cost recording system there should be, first of all, provision for entering the 10 principal items of vehicle operating costs, so often enumerated in this series of articles.
I provided for such entries in the sample analysis sheet which was published in the first and second of the articles (August 30 and September 6). Any item of expense which cannot be debited to one of the 10 principal items of operating cost is what I call a business operating cost, and may be referred to as establishment costs, overheads or administrative costs.
In that sample analysis sheet I made provision for establishment costs as a separate item, and I assessed them as being £3 17s. 6d. per week for the 10-ton vehicle which was cited as an example. At the same time, I emphasized that the figure was a reader's estimate and, in my opinion, was insufficient. Now I propose to deal in some detail with establishment costs, at the same time deinonstrating the insufficiency of the amount already mentioned.
I do not propose to suggest the use of an analysis, sheet for establishment costs, although the reader is at liberty to devise one for himself after reading this article, and will have no difficulty in doing so if he takes the items in the accompanying table as headings for his analysis sheet. He will then need an analysis sheet with 31 columns, as against the 23 which are necessary for the vehicle operating costs. My own recommendation would be that expenditure other than on vehicle operation should be entered into an ordinary ruled cash account book, carried forviard from page to page and totalled at the end of the year.
Operators are notoriously careless about making entries of expenditure. They forget to do so, or, as individual items are small, they think that the expenditure is not of sufficient consequence to record. That is a serious mistake, because the sum total of establishment costs, a large one, is made up of a number of small expenses.
I try to obviate this forgetfulness by drawing up a schedule of items on the lines of that accompanying this article, with a strong_ recommendation to the operator that he finds some amount to set down opposite each item, as only in that way can he ensure that nothing is left out.
There is ample justification for the stress that I am laying on this aspect of costing, for I know-from experience that many operators think that their establishment costs are so insignificant as to need no entry. I shall demonstrate in this article that in the case of a fleet of five 6-tonners, the total of establishment costs must, at the least, be £400 per annum. It may exceed £1,000, and is likely to average £750.
Hard Facts about Establishment Costs
I will now go through the items in the accompanying table, indicating the probable minimum and maximum, and then strike a mean. The figures I give will relate more to local haulage than to long-distance operation or to parcels carrying, for both these are more expensive as regards establishment costs than is local haulage. For example, both these types of business require the establishment of depots at various centres.
I begin with office rent, which, in the case of a small operator, may be a room at home, or a partitioned-off space in the garage. The minimum allowance for this accommodation is 5s. per week. Alternatively, the operator may require an office in which he can meet his customers, aod will desire it to be a little more presentable, in which case an allowance of not less than 10s. per week must be made on account of this item. The minimum office rent is £12 10s. and the maximum £26 per annum, with the probable average of £15.
Nobody who accepts the above figures for rent will quarrel with the amount that I have inserted for rates.
Next comes lighting and power. I think the figures I have set down—a maximum of £17 10s. and a minimum of £7, with an average of £12—will be generally accepted as reasonable. The larger figure includes provision for driving light machines of some sort, and, of course, the amount to be spent in that direction may vary, making it difficult to set down a provisional figure.
do not consider that I need enlarge to any extent upon the next few items—heating, water and telephone.
Expenditure on audit fees is inescapable and I have put down what operators have told me is an average figure.
Whilst some operators may be lucky as regards law costs,
most have to visit a solicitor about some matter. The forth coming two or three years may see a little extra legal expenditure on account of licensing. Spread over the years, however, the total of legal cost will not average much more than the assessment I have made.
A close watch must be kept upon the next item, "sundries," It is likely, if record be kept of every small item of expenditure, to be much greater in amount than the Operator expects.
Fines, except in rare instances, are likely to figure a little more Largely in operators' accounts in the coming years than during the war, when great freedom, both in respect of loads and speeds, was allowed, as compared with what is normal.
Under "travelling expenses," the operator should make provision for the expense of running a tar. Few hauliers manage without one, and I defy anyone to run a car for less than £1 a week. For a large mileage the cost will be double that figure, and, as there are other expenses as well, I am going to take it that the minimum is £50, the maximum £120, and the mean £90.
The next item is "clerical wages," which covers any payment made to office staff. It is rarely indeed that an operator can manage without some help, and if he is in the fortunate position of having a wife to help him with his business, he must still, if I know anything of wives, make some allowance above the housekeeping money on that account, I am quite sure that I am on the mean side in assessing expenditure per annum at £130, with a maximum of £312 and an average of £260.
No one will quarrel with the insertion of the item "National Insurance," and, in the amount quoted, I have made provision for the recent increases in amounts. Remember to Pay Yourself
The next item is "Management," and against that I debit whatever the operator decides is fair payment out of the income of the business to him as manager. It is only right that he should pay himself, and, whilst he may be willing to accept as little as .E2 per week on that account, he is more likely to be thinking in terms of £5 per week, The minimum, maximum and mean scheduled in Table I are based on those assumptions.
What should be set down on account of depreciation of garage fixtures, etc., will depend, naturally, upon the extent to which the operator makes use of such equipment. He is
sure to have something—probably a petrol and oil-fuel tank and pumps. He should also have a power-operated tyre pump, jacks, electric light fittings, lubricating-oil pump and so on. If I assume the total value is £100, then at least £5 per annum must be debited on account of depreciation. in a better-equipped garage the valuation may be £250 and the depreciation £12 10s., and I give the mean as £10.
I will leave "Subscriptions to Associations" and "Bank Charges" undiscussed, and come to "Ferries, Weighbridges, Parking, etc." What the operator spends on those items will depend on the locality. His expenditure may be as little as £1 per annum, but may be as much as £12, which I have assumed to be the maximum. I think £5 is a reasonable
figure to take as a mean.
"Interest on Hire Purchase" may be nil. The operator may be one of those wise men who take my advice and look upon depreciation as a sinking fund, carefully depositing the full amount in the bank each week, so that when the time comes to buy a new lorry he can make his purchase in cash. 'Such operators, however, are in the minority, and the amount due on interest may be anything from £10 to £50 per annum, with an average of £20.
When I refer to printing and stationery, I do not mean just billheads, note paper and envelopes. Every operator to-day must buy drivers' log sheets; if he uses oil fuel, he must buy a book in which to record his journeys and his use of that fuel. He needs account books in which to enter wages, so that he can deal adequately with P.A.Y.E. He requires drivers' report sheets, the analysis sheets on which I
am recommending him to record his vehicle operating costs, and the account book in which I am suggesting he enters his establishment costs. 1 think I am under-estimating in my minimum of £3 per annum, and I am certainly not excessive in my maximum of £10, or my average of £5. The rest of the items do not, 1 think, need further explanation. What I would like every operator to do is to give full consideration to the totals, together with the reasoned explanation of the items which 1 have just given. I will return to my original point that the amount el us. 6d. per week is insufficient in respect of the 10-tonner used as an example in the original analysis sheet.
1 have already mentioned that the figures in the accompanying table relate to 30 tons of payload capacity, which might well be made up of five 6-tonners. Let me assume, however, that there are four vehicles—two 6-ionners, one 8-tonner and one 10-tonner---and see how these establishment costs should be distributed amongst the various vehicles.
What Overhead; Really Cost
Take first the minimum annual total of establishment costs, which is £416 7s. Spread that sum over a 50-week year and we get £8 6s. per week. Divide by 30 to obtain the establishment costs per ton of payload (about 5s. 6d.). On that basis the establishment costs for the 6-tonner amount to ns. per week, for the 8-tonner to 44s., and for the IO-tonner to 55s. That is even lower than the amount of £3 17s. 6d. which 1 have already mentioned, but is the irreducible minimum, rarely to be experienced.
Now take the average figure, £796 10s. per annum. That is approximately £16 per week, which is 10s. 6d. per ton of payload, so that for the 6-tonner we must allocate £3 3s, per week per vehicle, for the 8-tonner £4 4s. and for the 10-tonner £5 5s.
If we now go to the maximum figure of £1,087 5s., the corresponding amounts, calculated in the same way, are 13s. 6d. per ton of payload, £4 Is. per week for the 6-tonner, gs. for the 8-tormer, and £6 I5s. for the 10-tonner.
S.T.R.