Costing
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'without costs'•
MANY COSTING systems are now available to fleet users, all wrapped up in different packages tied with different coloured ribbons bearing a variety of price tags. I hope the simple system outlined below will provide details of costs which will quickly highlight problem areas of the operation.
Analysing vehicle costs What information is needed? The most simple form of costing is to state the total costs of a vehicle over a period and to divide that sum by the miles run.
eg. Total vehicle costs for month ending £1,582 Total miles run 2,283 Cost per mile 69.3p What value is this to transport management? One can refer to the CM Cost Tables and decide that the cost is "acceptable", but does it give any indication of the efficiency of the transport operation?
What was the vehicle carrying over the same period? What would the result have been if the vehicle had run only 1,000 miles in the month?
It is obvious that such information is of little value on its own, as it gives no indication of cost effectiveness, other than that an additional £1,582 was added to the total company expenditure.
Standing costs and running costs These are the two main cost areas used in analysing vehicle costs. Standing costs are those incurred as a direct result of acquiring the vehicle, and if vehicles are purchased will include: • Depreciation of the vehicle.
• Interest on the capital investment.
• Licences (excise and operators).
• Insurance (vehicle and goods in transit).
• Employment costs of the driver.
Running costs are those incurred as a result of using the vehicle on the road and will include: • Fuel and oil, • Repairs and maintenance.
• Cost of tyres.
• Driver's expenses.
• Driver's overtime payments.
There are many different views on what should be included under each of the above heading, and it can be argued that the only real standing costs are the interest on the capital investment, the reduction in asset value over the period of account, and the insurance costs for fire and theft.
To simplify the costing, the above breakdown into standing and running costs is generally acceptable by most fleet operators.
The above monthly vehicle costs of £1,582 can now be analysed as follows: Standing costs: Depreciation (20 per cent pa x £12,000) 200 Notional interest (12 per cent x 12,000) 120 Licences 70 Insurances 48 Costs of employment of driver 456 Total standing costs 894 Running costs: Repairs and maintenance 217 Fuel (163 gallons) 236 Oil 12 Driver's expenses 62 Driver's overtime 161 — — Total running costs 688 Total costs for month £1,582 With the costs being shown separately, the value of these figures has increased the effective control that management has over the operation of the vehicle. Driver expenses at £62. . how does this compare with previous months? Fuel costs £236. how many gallons were used and how does the mpg compare with previous months? The analyis still shows a cost per mile of 69.3p, but if the work done by the vehicle is also shown, then the figures tell another story: Miles run 2,283 Number of journeys carried out 14 Total number of "machines" carried 548 Cost per mile run 69.3p Miles per gallon 14 Cost per journey £113 Average "machines" carried each journey 39 Cost to carry each "machine" £2.89 The information available to management is now of much more value especially to the "own-account operator". The "cost per journey" is £113. How does this cost compare with the cost of having a haulier do the job? Is 39 machines an acceptable payload for the type of vehicle being used? Is the cost of carrying each machine at £2.89 acceptable, and does it cover the amount budgeted as a delivery cost per machine in the build up of the product price?
Once the vehicle cost analysis is developed into more than a simple statement of cost per mile, it can then be of use to both the manufacturing and sales functions. The real way to achieve a cost-effective operation is to run the transport function within the distribution cost which the company product can bear.
If in building up the price of these "machines" (the product in the example) a distribution cost of £2.50 had been built into the selling price, then each unit sold during the month of the account would have suffered a reduction of profit of 39p, due entirely to the transport costs.
Building up a vehicle cost record The most informative costs of a transport operation are the running costs of the vehicle. These costs are: Fuel — showing both bulk (gallons) fuel issues from company tanks and supplied from outside garages on agency cards (this atso serves as a check on any mis use of agen cards).
Oil — only lubricants
(pints) sued to the vehi during normal n ning are recordi Oil changes on s vices are n shown.
Tyres only shows acti
expenditure.
Repairs — costs of "ola workshop" a outside garage pairs are shol separately.
Miles — taken from tac run graph record fuel slips.
This type of costing can be maintained by any junior clerk and requires no expertise in accountancy or costly comput programs. It is simply a recorc expenditure taken from the invoices passing through the transport department for payment. The monthly costinc record can be extended to include: • Total revenue earned by the vehicle.
• Number of production days worked by the vehicle.
• Number of production days when the vehicle was "off the road" due to: undergoing maintenancE or repair accident no work • A record of major replacement units (MRU) fitted to the vehicle during the month.
This information is useful to control warranty claims and to check on components which fail regularly.
This gives costing a more realistic meaning and the document can be used to ded any management action deemed necessary. Dividing a fleet of vehicles into groups of similar vehicles will enable "o of the ordinary costs" within a group to be highlighted.