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Complications With Higher Costs

19th January 1951
Page 50
Page 53
Page 50, 19th January 1951 — Complications With Higher Costs
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Which of the following most accurately describes the problem?

A Method by Means of Which Operating Expenses may be Expressed as Percentages of the Total is Discussed in this Article

IRECENTLY received a letter from Mr. G. W. Irwin, Eastern area secretary of the Road Haulage Association. He wrote: " We seem to have got back into a period of continuously rising costs and I am wondering whether there is any possibility. of producing some type of standard table of costs . . . so that whenever an increase in costs was announced it would be fairly simple to ascertain what percentage Of overall charges would be involved to meet the additional expense

The idea of making "The Commercial Motor" Tables of Operating Costs capable of being easily corrected so that allowance could quieky be made to cover price variations has often suggested itself to me, but I have never been able to find a solution to the problem involved. Mr. Irwin himself suggests the difficulty: there are so many variable factors. '

All I have been able to do hitherto is to provide in a footnote to each table a simple method of varying the figures in accordance with any alteration in the price of fuel.

Mr. Irwin put forward a means reckoned on percentages, and I propose to consider this suggestion, taking a medium-priced 5-6-tanner as a basis for calculation. It became apparent that I should have to depart from the method of arranging the operating costs that has for so long been standard in the Tables. Without some modification, the figures required would be too numerous.

For instance, referring to Table II and taking the figures for a 5-tonner, we find that the total running costs differ according to the weekly mileage, starting at 9.0/1d. per mile for 200 miles a week and falling to 7.22d. for 1,000 miles a week. If I exclude the data for 200 miles per week and commence to deal with the subject taking 300 miles a week, I find that the difference between figures for different weekly mileages is brought about by maintenance (d) and depreciation.

Both of these items diminish as a mileage cost as the weekly mileage rises. That for maintenance (d) does so because that item is a standing charge, covering expenditure which is incurred on a time basis. The depreciation figure varies because provision has to be made for obsolescence. This increases the .amount to be set against depreciation for low mileages and it falls as the weekly mileage rises.

To includes these two items with their difficult but essential variations would make building up a table of percentages extremely difficult, So I,decided to put maintenance (d) and depreciation under the heading of standing charges. The result is shown in Table 1, concerning which I propose to demonstrate how I arrived at the depreciation figure.

For the August, 1950, figure, I assumed an initial outlay of £900, from ivhich 1 dedimed £100 for tyres. I took the residual value at 10 per cent. of the net value, £80, and that left me with £720 as the sum on which to assess depreciation. Taking a four-year life, I allow £180 a year or 72s. a week, as set down in the Table.

The interest on capital outlay is £27 per annum, I Is. a week.

Tyres Raise Problem 8.6 When I came to consider the initial cost of the same 100.0 388 0 100.0 vehicle to-day I was faced with a problem. Since last

August there have been two increases in the price of tyres amounting in all to 41 per cent. The tyres which cost £100 last August, therefore, now cost £141. However, vehicle prices have not yet risen to an extent which reflects the increase in tyre' prices, possibly because contracts for the supply of tyres at the old prices have not yet been completed. Sooner or later, however, the £41 rise will be added to vehicle prices, so I have assumed that the initial cost of the vehicle will be £940. Deducting £140 for tyres, I get £800, so that the depreciation figure remains at 72s. a week.

The interest on £940 at 3 per cent, a year is £28 4s„ or Hs. 6d. a week.,

do not think that the first two paragraphs of Table I need much more explanation. It will be noted that I have provided for the 7s.-a-week wage increase which became

effective on December 22, and for a 25-per-cent. rise in insurance premiums which seems to be forthcoming, and in some instances has become effective.

The third and fourth paragraphs may need explanation. In paragraph three, the running cost per week is now calculated as a total, The item 126s. 9d., for example, is obtained by multiplying the running cost per mile, 5.07d., by 300. The total cost per week is given in the last paragraph. This is obtained by adding the total running cost to the total standing charge. In the last column,

as will be seen, I have set out the items representing increases as percentages.

The complication of the proposed method of setting out costs as percentages now begins to develop. Each of the amounts in the second column and the last paragraph is 100 per cent, for the appropriate weekly mileage. We therefore have totals for five different weekly miltges, each of which has to be regarded as 100 per cent, for calculation. Of each. total, every constituent item of cost must he deducted and expressed as ,a percentage. This is what I shall do—taking Iwo mileages, 300 and 800. The result of my calculations is shown in Table II, in which the increases are again shown as percentages.

There is no division between standing charges and running costs as the running-cost figures have been compiled on a

weekly, and not a mileage, basis. These I took from Table I. For instance, I took 2.57d. per mile for fuel and Multiplied it by 300 to give me the 64s. 3d. entered in Table II. If the figures in Table 11 be studied, it will be realized into what complication we have entered. . The percentage figure for wages at 300 miles a week is 30.6 for August last, and although the amount has risen from 112s. to 119s. a week, the percentage increase is only 0.1, being 30.7 now. • The defect is intensified by reference to the second part of the Table relating to weekly mileages of 800. Whilst the wage percentage was 19.4 last August. it is now 19.3, a.drop despite the 7s. increase.

In Fig. 1, which shows the proportions of the various costs, it can be seen that wages predominates for a weekly mileage of 300, whilst it falls to second place for 800 mites a week. In particular, it should be noted how the proportion of standing charges to running costs differs according to the weekly mileage. At 300 miles a week, the standing charges represent 64.8 per cent. of the total, whereas at 800 it is only 40.7 per cent.

It would seem that the complication is such that it is useless to proceed further. The fact that the 7s. rise in wages is shown as a reduction in the percentage of the total seems to render the whole scheme absurd. Actually, this is not so. and in my next article I shall show the application and value of Mr. Irwin's suggested method. S.T.R.


Organisations: Road Haulage Association
People: G. W. Irwin

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