Losing Money
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Page 47
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every week!
Solving the Problems Carrier
All Figures Worry Him !
"I weekly 2-tanner ably."
presume that -the mileage of the varies consider
"Yes, it does."
" Then I should say that, whilst you do not need the mileage and hourly costs for the big vehicle, you most certainly require them for the small one."
" For what purpose?"
" To enable you to cal. culate your charges."
"But I always charge 46. per mile."
"But suppose, with your 2-tonner, you take on a job which keeps the vehicle busy all morning, but it covers, s36 perhaps, only a dozen miles'?"
"In the case of work where the mileage is small, 1 charge 4s. per hour."
"Have you any record sheets completed, relating to the work of this small vehicIei " "Yes, covering about three months."
"Let me see them, will you, please? "
He produced his copy of The Commercial Motor Operating Costs Record and I went through some of his figures for the 2-tonner. I observed that the cost per mile—running costs only, of course—varied from about Sd. to about aid. and the total cost per week from £4 to £4 10s. He had not worked out the cost per hour.
"Would you agree that fair average figures for this vehicle are 31d. per mile for running costs and £4 5s. per week for standing charges? "
"Yes." Operating Costs Rarely Covered.
"Then you can rarely cover your bare operating costs when you charge 4d. per mile."
"How do you make that out?"
" Well, there is only id. per mile left over from the running costs of 31d. per mile, and upon that you depend to cover the standing charges, which amount to 85s. per week. Now, if you divide 85s. by id. you get 1,360, and that means that you must cover 1,360 miles in a week before you can reduce your total operating cost to 4d. per mile."
"But that's impossible. I couldn't run that mileage in a week, even if there were work of the right kind," "Exactly, and that is why I say you are not covering your operating costs." He still looked puzzled. "I am not sure that I understand your calculation."
"I will put it in another way for you. If you actually did cover 1,360 miles in a week, your total cost would be made up of 1,360 times Sid., the running cost pe_F mile, and £4 5s., the standing charges per week."
I thereupon made the necessary calculations to demonstrate to him that, in that case, the total cost per mile would be 4d.
"Actually," I continued, "I see that the most you ever did in any week, with this vehicle, was 640 miles, and there have been weeks when you have run as little as 240 miles. Now, at the maximum mileage of 640, your total expenditure in a week is £8 13s. 4d., plus the £4 5s. per week standing charges, giving a total of 212 18s. 4d. If you divide that figure by 640 miles, you will find" (and here I worked this little sum out for him) " that the cost per mile is 4.84d.; which is well over 40. per mile.
" If I give you a margin of nearly 1/10d., it is still a fact that, with your weekly mileage at a maximum, your vehicle is costing you 40. to run for each mile and you are receiving only 4d. That means that your net receipts are £2 per week less than the cost of running the vehicle—and that, I would remind you, is not all the expenditure to which you are put.
" If we take the figures for your minimum mileage, 240 per week, the case is much worse. There your total cost is made up of 240 times 30., which is £3 5s., plus the standing charges of 24 5s., making a total of £7 10s. That equals 70. per mile, but you receive only 4d. Your revenue is only £4 and the bare cost of operating your vehicle is 27 10s."
"But it is more than likely," he objected, "that in the weeks when the mileage is so low,. I have done a considerable proportion of the work at 4s_ per hour."
" Very well, then, suppose we consider it on that basis. How, much of a week of that kind do you think has been devoted to work of that description—and before we look for that figure, we had better find out how many hours per week your vehicle runs, as a rule?"
We referred to his Operating Costs Record and found that the working hours per week of the vehicle varied from 44 to 50. On a week when there was a maximum of work charged for by the hour (and that actually was the week when the mileage was 240) 20 hours were paid for at 4s. per hour and the rest of the mileage at 4d. per mile.
" How many miles an hour do you think you cover on those occasions when you charge by the hour?'' "At a rough guess, six."
" Very well, I will take your rough guess, although I don't like it. My own experience would lead me to assume that on work of that kind, eight miles per hour is nearer the mark. If I take it that your average week's work is 48 hours, and if we stick to the £4 5s. per week for standing charges, the cost per hour on standing charges alone is 1s. Bid. In addition, you cover six miles at 31d. per mile, which is equivalent to Is. 71d. Your total cost is thus 3s. 4icl. per hour."
" There you are," he exclaimed triumphantly, " I am making 70, an hour profit on that work." "That 7fd. is by no means all profit. Actually, I doubt whether there is any profit at all at 4s. per hour. But, just for the sake of argument, I will suppose that it is all profit. You work 20 hours per week at 4s. an hour and, at 6 m.p.h., you actually cover 120 miles. It follows that out of the week's mileage of 240, you still do 120 for which you receive 4d. per mile.
"Your total revenue is 20 hours at 4s. per hour, which is £4, together with 120 miles at 4d. per mile, which is 22; that makes 26 per week altogether. Now, I have already shown that the total cost of covering 240 miles per week is 47 10s., so that you are at a minimum loss of 30s. per week in connection with that work." "There is something wrong somewhere, because my accountants tell me that my business is showing a profit."
"In all probability, that is due to the work you are doing with the big vehicle. Before I go into that matter, I want to draw your attention to the fact that, in making these calculations, I have had to find the cost per hour of your standing charges and the equivalent per mile of your running costs to arrive at a figure for total cost of operation either per mile or per hour. It was necessary to do that before I could discover that you were making a loss on the operation of this vehicle." Calculating Cost Per Hour and Cost Per Mile: One Way in which Profit can be Diminished. More About a Chat with a Tyro
THOUGHT when, as recounted in last week's issue, I had explained to inquisitive haulier the reasons why he should keep data of actual expenditure, as well as estimated figures for cost, I had. finished. I was wrong. an
of the
" tell you another thing I don't understand," he said, just as I was preparing to leave. "Why must I go to the trouble of reducing my figures for total cost to cost per mile and cost per hour? "
"You don't have to do that if you don't wish to," I replied, "But you •make provision for it in your book, so you must have a reason for it."
" Quite. But the necessity of conforming with what is suggested in the Operating Costs Record depends, to some extent, upon the purpose for which the figures are required. If, by the use of this Record, I can persuade hauliers to keep any kind of figures for their operating costs, I shall be pleased.. It will be a step in the right direction. But why do you object to this little calculation, so as to arrive at the cost per mile and the cost per hour? It is not much trouble."
"Any figures are a trouble to me, but I will do work if you can show me the need for it. What use the figures when I have them?"
"To some extent, my answer of work you are doing. How employed? " the are depends upon the type are your two vehicles