Solving the Problefils of the Carrier .
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A Simple Cost-recording System
An Article Prepared in Response to an Increasing Demand: Hauliers Becoming More and More Aware of the Need for Accurate Cost Figures are Getting Their House in Order in Preparation for Post-war Conditions
I-.NAVE' had a number of requests recently for some assistance in preparing a simple system of. cost recording. Time and again I have referred inquirers to previous articles I haVe writtenon the,. subject. ,Their reactipn differs. Some say they cannot get hold of: back.: numbers of '' The Commercial Motor " except by going to some reference library and there the difficulty is copying out more or less complicated schemes -or; on perusal of the article to which they havekbeen referred, they tell me it is not quite what they.want.
The most recent of these inquiries is of the latter order. It comes from a reader who tells Me that none of my articles in the past seems quite to fulfil his reqiiirements. He wants something simple, not involving much clerical work but satisfactory enough to meet his needs. He has a fleet of 13 vehicles:comprising a I0-tonner, an 8-tonner, fOur 5-tonners and seven 6-tanners.. ".
. It would have been easier to deaf with this inquiry if he had indicated in what way the ysterns I have previously described did not fill the bill, for, in my opinion, those which haVe been dealt with in " The Commercial Motor " are, if not universally adaptable, nevertheless do' meetthe requirements of any individual. haulier. However, I am dealing with, this inquiry as it raised a new problem. In devising this system I am keeping_prominetitly in mind the outstanding need, that is, simplicity in accountancy. Regular readers will at once see the Similarity between this and previous methods of cost recording . about which I. have written. That, indeed, is inevitable, because I always insist that regard Must invariably :he paid to certain fundamentals, and unless those first principle be kept in mind the system of cost recording cannot be satisfactory.
The first of these is that, in Moderate-size fleets, at any rate, each vehicle must be separately costed. The Second is that 'the operating costs of each vehicle must he complete, and the third is that establishment costs must be given in sum but not necessarily in detail; they must, however; be so separated from the rest of the.kosts that there shall be no confusion between total vehicle costs and, what I call; total transport costs whichcomprise vehicle operating costs plus establishment costs.'
A Straightforwayd Scheme The fowl which I now recommend is that which accompanies this article. It is so arranged that it is easy for any operator to purchase analysis sheets from a local stationer and adapt them to his own requirements. . For the sake of sirriplicity, and to ease the work' of accounts keeping, the first thing I recommend is that certain fixed costs should be calculated and set out as shown at the top of each sheet. This is comparatively easy, and the method is facilitated by the plan, which I recommend, of having one sheet for each vehicle. Incidentally, if pos. sible,. the sheet should -be large enough to anew, the entry of 52 weeks' working, so that one sheet serves for one year's records.
Naturally, the registered number of the vehicle shOuld be recorded, as well as its fleet number. It is useful, also to make a mate of the'rnake, pay-load, initial cost price and date of purchase.. These appear; on thesimple analysis sheet here shown.
Here we need the .figures from which fixed costs can directly he calculated. .There„-is the annual tax shown as being £110 and the insurance premium as £150. On the extreme right of the sheet is a column for standing charges per week. The amounts shown are: Tax; £2 2s. 4d., which is found 'by dividing £110 by 52 (for 52 weeks in a year); similarly insurance, £2 17s. 8d. results front-dividing £150
by 52; -the garage rent comes next, and interest On first-cost, at approximately 3i per cent. to 4 per cent. on £1,890. the 'initial outlay on the vehicle: Adding those four items we get £6 16s. 2d. as the total of fixed. costs; wages and licences, as will shortly be shown; are entered separately.
The other entries at the, top of the form are as folloW:—
. Estimated maintenance cost per mile taken from'' The Commercial Motor" Tables of Operating Costs ter a.10-ton oil-engined vehicle. The actual figure is 1.92d., but 1 have set down -2d. as being near enough For our present purpose.
Depredation per mile, at 1.7d., is calculated in this way. First, there is the initial outlay df £1,890 from which must
• .be.deditcted £190, the cost of a set of 10 36-in, by 43.-in.
• tytes. That leaves £1,700.Assuming that the vehicle be depreciated over 240,006 miles, then we can set down the depreciation at 1.7a.
The tyre cost per mile is Calculated by dividing the cost of a set of tyres—l90—by the assumed life of a set, say 20,000 miles, which gives 2.28d, per mile. The reason why these small calculations are to be made before proceeding tb discuss the analysis sheet proper; will emerge as this article . proceeds. •
,• Last,, but not least of the calculations and entries which must be made at the top of the form, is that of establish Ment cOsts. • Establishment Cost Items
Now, I am not going to deal in.cletail with this matter, as this was done as recently as the issue‘dated April 20, and I have done so many. times before. What-I will do for the benefit of new readers is to enumerate the items of establishment costs. The amounts they have to expend on each
item they must assess for themselves until they arrive at
'total 'for' establishment costs for the year. The items are:— Office rent and rates, lighting and power, heating, water, telephone, audit fees, law costs, sundries, fines, travefling expenses (car, etc.), clerical wages, National Insurance (clerical staff), directors' fees, depreciation. of garage fixtures, subscriptions to associations, bank charges, ferries, weighbridges, parking, interests on hire purchase:, printing and stationery, insurance of buildin-gs, maintenance of .buildings, bad debts, claims, interest on capital, postages, A and B licences, advertising and goods-in-transit insurance.
There will be few of these items which any operator can overlook. The amount, in some cases, may he small, but, nevertheless, it exists and care should be taken, in assessing these important items of expenditure, that nothings is overlooked.
.. How the amount of £5 15s. 6d. per week, which is set down on the accompanying form, is arrived at, may best be shown by example: Assume that' the Operator who raised this question • finds that his total is £2,700 per 'annum. He has 90 tons of pay-load, which means that his establishment costs per annum per ton of pay-load are £30, For the 10-tonner, which I have taken as an example, the total is thus £300 per annum and, dividing by 52, gives us £5 15s. 6d'. per week to within a penny or two.
The first essential is the mileage covered eaCh week. The need for that, I, imagine, hardly needs justifying.
Next, provision must be made for the five running casts— fuel, oil, tyres, maintenance and depreciation. It will be observed that these mair. headings appear in block letters arid that, With one exception, more than one column is required for each: • Under fuel, for exam-pie, we have a column for gallons consumed during the week, and for the colt 'of that fuel. Similarly with lubricating oil—gallons and cost.
There are two columns under the heading " Tyres " and here, perhaps; a -little explanation may be necessary. It
• .is not, enough for the haulage contractor; who wants to know what his real expense is each week, merely to set down what he'has actually paid out in respect of new tyres or for repairsto them. Were that done, there would be many weeks in which no expenditure would be recOrded, in which case, as with maintenance, to which I shall refer later, he might get quite the wrong idea as to what his weekly cost really was. He might think lie was making rkinch more profit than was actually the case. In consequence, he might be inclined to cut his rates, with. disastrous result* when, eventually, considerable expenditure On tyres and maintenance became necessary.
Under the heading " Tyres," therefore, I call, for two columns, one for estimated cost and one for aetual expenditure. The estithated cost is found by multiplying the cost per mile of tyres as set out at 'the top of the form-2.28d. per mile-by the number of miles run. Thus, in the first week for which records are shown, the vehicle runs 832 miles. • Multiplying '832 by 2.28d. we get £7 18s. Id., which is what I call the estimated cost of tyres for that • week. Similarly, in the next week, when 805 miles are run, the estimated tyre cost is £7 13s. .
It would perhaps be better understood if I say that the foregoing amounts are, in effect; provision for money which will eventually have to be spent on tyres: Actual Expenditure On Tyres
The second column under" Tyres .'" is for actual expenditure.. Any .money spent on tyres, either for new ones or for repairs to old ones, must be entered in that column. Ultimately, in 'a waY which I shall 'describe, the actual expenditure can be Cheeked against the estimated Cost arid, if thOught desirable, Modification can be Made in the estimated -exPenditure for future use.
A special warning is here necessary. When a new vehicle is put into cOnimiSsion, the cost of a set of tyres must at once ,be entered in the column "'Actual Expenditure" or; if that be not clone, the eventual figures for actual expenditure on tyres will be incorrect to the extent cht a cost of a set, which, in this case, is £190-a not inconsiderable sum.
Maintenance tomes next, and, here again, the sanie principle is adoPted. There Is a weekly record of estimated maintenance costs Obtained by Multiplying 2d per mile, .as recorded on the top of the form, by the actual mileage .covered. In the first week, we have 832 miles at 2d.,, which is .£6 18s. ficl. and,. in thp 'second week, .805 miles at 2d., which is £6 14s; 2d.
There are three other columns under "Maintenance "one for expenditure on labour, another for materials and a third for the total. The first two are for use in respect of work carried out on the operator's own premises by his own men, The last one, besides being used for the total, also --serves for the entry 01 the cost of maintenance work pe.rformed other than by the operator's own staff.
Working Out Depredation Now comes depreciation. The amounts to be entered each week are calculated in, the same way as estimatedtyre and maintenance costs, by multiplying the depreciation per mile, which is set dowu at the top of the sheet as being 1.7d., by the nurnbir of miles run duritig' the week. We thus get the amounts £5 17s. 10d. and '25 14s. Id., which appear in the form.
Having now finished with the running costs of the vehicle, we now come to.the standing charges which include drivers' wages. The next four. columns, therefore, need but little explanation. In the first one we have the actual wages paid to .the driver during that particular week, then National Insurance contributions and, after that, the appro.priate amount for the premium. under the Workmen's Compensation Act. Finally, 'in column 17, under " Standing Charges," is entered 26 16s. 2d., which has already been calculated and' is set .down at the right-hand side at the top of the 'form.
We now have 10 items of vehicle-operating costs:-Five running costs-fuel, oil, tyres, maintenance and deprecia.tion-and the five standing charges-wages, tax, insurance,
garage rent and interest-, .
We roust now add the appropriate amounts so as to•get the total operating costs; that is, for each week we must add the amounts Under columns 4, 6, 7, 9, .13, 14, 15, 16 and 17. In this way we find that the. total vehicle operating cost for
the first week is 140 4s, 41d„ and for the second week £38 15s. 5d.
It is most useful to know the actual cost per mile, and this iS fpund by dividing the total cost each week by the total mileage. ..Thus, by dividing the cost in the first week £40 4s 40.—lay 832 mileS, we get 11.60d. as the cost per mile and, similarly, in the second week 11.56d, In order to get our total transport costs we have still to add the establishment costs of £5 15s. 6d. for each week. In doing so we get the total weekly expenditure as being £45 19s. 100. for the first week, and £44 10s. lid. foe the second week.
I am sure there is no need for me to explain the meaning of columns 22 and 23, which give the revenue per week and a profit (or loss) per week, except to state that the lastnamed is arrived at by subtracting the amount in column 2/, that is the total weekly expenditure, from that in column 22, which is the total revenue per week. • I promised to suggest hoiv the estimated figures for tyres and maintenance should be corrected, if there was an great divergence between actual and estimated figures. •
No such correction should be made during the first year, but at the end of that year the operator should use his discretion. Suppose he finds that the actual expenditure, either on tyres or maintenance, is considerably less than the estimated figure, Take tyres first. Whilst he knows he has spent little On tyres during that year, he also appreciates that the tyres of that vehicle are so badly worn that a new set will have to be purchased almost immediately; he would be better advised to leave the estimated figures alone for another year.
If, ,however, there has been reasonable expenditure on tyres during the year, and they still be good for many thousands of miles and that, nevertheless, there is considerable difference between the actual and estimated figures, then I recommend him to cnIculate from his actual expenditure a new figure for estimating expenditure. He will do this by dividing the total of the year's mileage into the .total expenditure on tyres and for the succeeding year Lb take the mean between the old figure and the new. Similar procedure should be adopted in regard to maintenance.