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Learning What Costs Really Are

18th November 1938
Page 68
Page 69
Page 68, 18th November 1938 — Learning What Costs Really Are
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Which of the following most accurately describes the problem?

IN the reproduction of a page from The Commercial _ Motor Operating Costs Record, which appeared in the issue dated November 4, the only figures filled-in were the Standing charges, which appear again on the more complete form reproduced herewith. The figures are 93s. 6d. for tax + insurance + rent + interest, and

wages (including insurance) 147s. 9d., with the total, 241s. 3d.

Now, the great point about these figures is that it is no trouble for the haulier to enter them. The 93s. 6d. is calculated (as described last week) when he buys a new vehicle; it does not materially alter throughout the life of the vehicle and can be entered each week without alteration. It is just as easy to enter the amount paid in wages and to add the two together, to find the total standing charges. It is of interest to note that, to some extent, the 93s. 6d. is an estimate, but it is an estimate that is almost sure to be 100 per cent. accurate.

The great point to note is that this total of 241s. 3d., or thereabouts, according to slight variations in wages, is, in effect, an inescapable expenditure. Taking a whole year as a basis for calculation, then the haulage contractor has to find about £12 per week, week in, week out, to meet the standing charges only.

Whilst we are dealing with the lower half of the page, we may as well enter the price of fuel and the price of the lubricating oil. We come, next, to the third item, that is, "Cost of tyres, maintenance and depreciation." Here, again, we see the need for careful estimating or

budgeting. How is the haulier to .arrive at this figure).— Probably the best course, both for the experienced as well as the inexperienced man, is for him to take as a basis the figures from The Commercial Motor Tables B32

Before he can get the figures appropriate to his own conditions he must have some rough idea of his weekly mileage. I am going to assume that it is on some weeks 900, and on others 1,100, so that a fair average figure is 1,000 miles per week. In that part of the table entitled "Running Costs (pence per mile) 800 miles per week," he will find the figures he needs.

Tyre and Maintenance Considerations.

For tyres, the amount is 1.20d. per mile. For maintenance, he will note there are two figures quoted in the Table and if, as recommended, he reads the explanatory notes, he will find that if his business be such that the driver looks after the washing and polishing of the vehicle, he need take only one of them. I am assuming, in this case, that the driver does take care of that part of maintenance, so that all that he need set down is 1.12d. per mile for maintenance and 1.66d. per mile • for depreciation, and the total is 3.98d, per mile. That is"Cost of tyres, depreciation and maintenance." Now, here is another important point. This figure of 3.98d. per mile is an estimate. It is a fair and reasonable one and, given reasonable attention, the figures will be found very close to actuality, provided that the operator realizes that, during the first year or so, he will be saving something in the way of maintenance and that on the basis of these figures he will, during the third or fourth year of life of his vehicle, be losing something on maintenance.

expenditure is 140s. It should be noted that there is no need for the operator to worry about what fuel there was in the tank at the beginning of the week, or what there was left in the tank at the end of the week. That has nothing to do with our present job, which is finding out what has actually been spent on fuel, during the week. The same applies to the next line, the cost of lubricating oil. The quantity used is 19 pints and, at 6d. per pint, that is 9s. 6d.

Arriving at Total Costs.

Now comes the estimated figure which I have already explained at some length. The vehicle, during the week, has covered 1,002 miles and that must be multi., plied by 3.98d., in order to ascertain what is the total cost of tyres, maintenance and depreciation durin5 the week. The result of that multiplication is actually 3987.96d. That, of course, is the same thing as 3988d. and dividing by 12 we get 332s. 4d. as the total cost (estimated) of those three items. The grand total is 481s. 10d.

I am not going to proceed any further with these figures. That is to say, I am not going to calculate the running costs per mile or the standing charges per hour. I have attained my objective in finding what this vehicle has cost throughout the week. Leaving out the odd shillings and pence, it has cost £24 for running costs and £12 for standing charges, that is, £36 for the week.

That is the preliminary basis for discovering whether the vehicle is really earning a profit or not. On to that must go some provision for establishment costs,

for which I shall take £4 per week.

I have, in this way, arrived at the important conclusion that the vehicle must earn at least 240 to clear costs andthat anything over £40 is profit. That is always providing the vehicle is engaged week by week throughout the year, running an average of somewhere about 1,000 miles per week and carrying loads which bring not less than, say, 250 per week to the operator.

The difficulty which I am out to avoid, in suggesting this method of keeping costs, is that of the operator who thinks that his total expenditure each week is covered by the 140s. for fuel and the 149s. 9d. for wages plus,

perhaps, 10s. for rent. S.T.R.


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