AT THE HEART OF THE ROAD TRANSPORT INDUSTRY.

Call our Sales Team on 0208 912 2120

Making a start in costing

19th January 1968
Page 70
Page 71
Page 70, 19th January 1968 — Making a start in costing
Close
Noticed an error?
If you've noticed an error in this article please click here to report it so we can fix it.

Which of the following most accurately describes the problem?

COMMENDABLY GREATER EMPHASIS is now being given to accountability in road transport, partly due to the references made in recent reports of the Prices and Incomes Board on road haulage. In the last two weeks I have commented in this series on the purpose of costing and the need for most operators —many have only five vehicles or less—to keep any costing system simple.

The recommended vehicle costing shown here is intended to serve just such a purpose. Because it is assumed that the operator has relatively few vehicles the system is based on a separate record for each vehicle.

As stressed in previous articles, no one system is likely to be universally appropriate to all circumstances. For example, in larger fleets with substantial groups of identical vehicles doing similar work "sample" vehicle costing might be considered adequate. But even here the "sample" vehicle should be costed on the same or similar sheet as the one recommended here.

First, before describing the cost sheet itself, I will briefly describe the costing principles on which the sheet is based. Because time and mileage are fundamental to transport operation it is logical to make a corresponding division in operating costs. To facilitate subsequent analysis the total operating cost is divided into 10 items.

Five of these are termed standing costs and are incurred whether a vehicle is in use or not. They are therefore calculated on a time basis, i.e. as a cost per year, per week or per hour. These five items are: licences; wages; rent and rates; insurance; and interest.

The five items of running cost are: fuel; lubricants; tyres; maintenance; and depreciation. These costs are directly incurred in relation to the use of the vehicle and are therefore expressed as a cost per mile.

All these 10 items concern expenditure which can be directly attributed to individual vehicles. There are, however, other costs which cannot be so attributed, assuming of course that an operator has more than one vehicle.

These items of expenditure are commonly referred to as overhead or administrative costs and must be recorded separately and the total divided between each vehicle in the proportions considered appropriate in any particular instance. An example of overhead costs would be the transport manager's salary—and office staff where employed.

When setting up a cost recording system, past, present or future operation would all be involved and correspondingly referred to as cost record or forecast. But the operator about to enter transport, or even the established operator about to put a new type of vehicle on the road, will have no yardstick based on his own experience as to his likely future costs. Nevertheless he must still submit proposed .charges to potential customers if he is to do business as a professional operator.

It is in just such a situation that a standard set of costs such as the COM2vIERCIAL MOTOR Tables of Operating Costs will prove invaluable until an operator has sufficient records of his own directly related to the type and conditions of operation in which he is involved. Subsequently, however, he will still find it useful to continue to make comparisons between his own and standard records.

It has been necessary to stress this distinction between past, present and future records since this is a major reason for the layout of the recommended vehicle costing shown here. Undoubtedly at first sight it will appear complex to those unaccustomed to costing vehicle operation and it is an unfortunate fact that this description of its use may well take longer than its actual compiling, week by week, once the procedure is understood. But there can be no doubt that its purpose is worth while: nothing is more vital in a commercial undertaking than knowing the current level of profitability.

Regarding the period covered by this cost sheet it is intended that entries should be made weekly and it would be convenient to allow for 13, 26 or even 52 weeks.

As there is to be one sheet for each vehicle, the main distinguishing feature, i.e. the vehicle registration or fleet number should appear where it is most readily ascertainable at the righthand top corner. Below this provision is made for the entry of the period covered by the particular sheet.

Before dealing with the weekly entry it will be noted that additional information has to be entered in the heading in four sections. But such entry is on a once-only basis and lasts until the sheet itself is replaced.

The first section of the heading is entitled "Vehicle data". Several of the nine items listed in this section can be transferred from the registration book, manufacturer's specification records or purchase invoice.

Where a fleet numbering system is employed this is put down first followed by the registration number, make and type of vehicle. Despite the advent of maximum gross plated weights the unladen weight and maximum payload remain as two items which affect costing records since they have a direct bearing on the amount of excise duty paid and the revenue earned.

The last item—estimated vehicle life in miles—requires estimation. The result will be conditioned by the type of vehicle and the conditions of operation.

The second section in the heading is a short one in which simple details are recorded concerning tyres, including the estimated mileage life. In addition to the size, the entry of the number of tyres per set is a useful reminder in these days of multi-wheeled articulated outfits. This item in turn facilitates calculation of the next item, namely "cost per set". As a result of the entries now made the necessary calculations can be completed for entry into the third section of the heading, namely the estimated cost per mile for tyres and depreciation. The other item in this section—estimated cost per mile for maintenance —will have to be provided either by the operator's previous records or, if these are not available, from standard costs until such times as they are available.

Four of the five items of standing cost are entered in the fourth section of the heading. They are licence duty; garage rent and rates; insurance; and interest. (The other item of standing cost —drivers' wages is dealt with in the main section of this cost sheet.)

These four items are first recorded as annual totals and then as a weekly amount based on a 52-week year as opposed to a 48-week year now used for calculating operating costs as shown in the COMMERCIAL MOTOR Tables of Operating Costs.

This is because actual expenditure and revenue is being entered on this vehicle cost sheet week by week throughout the year. Even when the vehicle may be off the road for overhaul there will still be entries to be made on that account in the main section of the cost sheet as will be explained later.

Therefore if standing costs in this instance were divided by some lesser figure than 52 weeks there would be some weeks left at the end of the financial year when no entries in respect of

standing costs would be recorded, so giving an unbalanced picture of expenditure and revenue for those weeks. Underneath the annual and weekly total shown for standing cost it is convenient to enter the corresponding totals for overhead or administration costs. As mentioned earlier these include items which cannot be directly related to individual vehicles and in a large organization could include expenditure groups under management, office, garage and stores, warehouse, branch depots, sales and publicity, professional services and auxiliary fleets.

For those not familiar with commercial vehicle costing a further word of explanation needs to be made concerning the entries in the heading before going on to explain the main section of this cost sheet next week. Concerning the item of depreciation there are admittedly differing opinions as to whether this should be charged as a running cost or a standing cost. The former procedure is adopted here and it is accordingly entered in the heading as an estimated cost per mile.

Also when calculating depreciation the equivalent cost of the original set of tyres should first be deducted from the cost price of the vehicle since tyres are already dealt with as a separate item.

To obtain the balance to be written off a further deduction is made relative to the anticipated residual value of the vehicle and this final amount is then divided by the estimated mileage life and the result entered in the heading as already described.

Tags

Organisations: Prices and Incomes Board

comments powered by Disqus