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148 
COSTS THAT COUNT (2)
Page 39
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by David Lowe, MInstTA, AMBIM AST week I defined the four basic lements of vehicle costing—namely, standg, establishment, running and total perating costs.
Standing costs, which have to be met Thether the vehicle is running or standing lie, comprise: licences, insurance, wages, mt, rates and interest on capital, plus one ther item, depreciation, which, depending n the operator's preference, may be icluded under this heading or as a running 3st. I prefer to look upon this item from a me, rather than a mileage basis, although le CM Tables of Operating Costs choose le alternative—and therefore it is best town as a standing cost.
landing costs
Most of the items comprising the standing )sts are easily related to annual amounts. or example, tax and insurance are paid ice a year and interest is talked of in rms of a rate, per annum. So, to start the ilculations, the annual amounts for each ern can be set down.
Licences include both the excise duty on e vehicle, based on its unladen weight g on a 16 ton gross four-wheeler weighing ton lOcwt unladen the rate is £216.00 per mum) and the operators' licence fee which £4 per vehicle per year, making a total, in is example, of £220 per annum for ences.
Insurance premiums are charged annually this figure is easily obtained from the emium renewal notice. If a fleet policy is force and the renewal notice only shows :otal premium for the fleet, the insurance mpany will, on request, break this sum ,wn to individual annual vehicle emiums. This is important; the total of a at premium should not just be divided by e number of vehicles covered because an representative figure may be obtained for Particular vehicle.
Isurance rates
Insurance rates vary widely, are subject certain discounts and are influenced by LILY factors such as the value of vehicles, ; area of operation and the operator's wious claims experience, so that accurate ures cannot be taken here. However, ng a figure quoted in the cost tables as ng average for this type of vehicle for nprehensive cover on haulage operations, annual premium of £229.05 is taken. No :aunt should be taken here of other insurances, such as goods in transit, or cover on buildings, because these do not directly relate to an individual vehicle.
Drivers' wages are usually based on a weekly payment system comprising basic pay plus overtime, bonus, productivity, accident-freedom and other additional payments.
Costing in advance
If costing is being carried out in advance of operation in order to decide what rates to charge, then the best way of dealing with wages is to make an estimation based on previous payments over a' period and multiply this to give an annual figure.
For an example, assume that the average gross pay for a driver is £25 per week. On top of this will be the employer's national insurance contribution, employer's indemnity insurance, SET, training levy and, possibly, contribution to pension fund and life insurance premiums which are sometimes offered as additional "perks".
If, say, these extras amount to a further £5 per week, this means that a total of £30 per week for 52 weeks in the year has to be met whether or not the vehicle works—an annual total of £1560. As the weekly total was multiplied by 52 this takes care of holiday payments due to the driver but what it does not allow for is the possibility that the vehicle does not always work full weeks, or the driver is off sick, so bonus and productivity payments will have been allowed for which are not actually paid out.
Rent and rates
The payments for rent and rates which are to be included here are only those relating to the parking or garaging of the vehicle, not those of the workshops, offices or warehouse, which are dealt with separately. Again, for the purposes of example only, a figure of £2 per week, £104 per year is used.
Interest on capital is a cost item which is little understood and frequently omitted from vehicle cost calculations. It is necessary that provision for this item is included and its purpose can be two-fold. Its foremost purpose is to provide the proprietor of the business with, what is a very common term in business finance, "return on capital". What this means is that not only should a business make a profit from its operations, attained by adding a profit margin to the cost of operating, but it should provide financial compensation in return for the money invested in the business by the proprietor, partners or directors. If the proprietor had not risked his capital by buying vehicles which depreciate, he could have placed it in secure investments which not only appreciate in value but also provide him with interest payments without any risk (and without the worries of running a transport business).
This premise can obviously only apply if the proprietor laid out his own capital to buy vehicles. If he did not have the capital originally then, obviously, he cannot expect a return on it. But he will have had to borrow money from other sources, such as a bank or hire purchase company, to buy his vehicles (leasing and renting will be dealt with later) and in return for the loan of this money they, too, will want a return on capital in the form of interest on top of the capital sum which has to be repaid.
Interest charge
The provision of an interest charge in the costs, therefore, provides the vehicle owner with a return on his capital or, if the vehicles are being bought on hire purchase or credit terms, it will cover the interest payable to the finance house (the capital portion of the repayment will be compensated for in the depreciation allowance).
If we consider that our vehicle cost £3500 with body as a cash purchase and a return of 9 per cent per annum return on capital is required (this is a gross figure representative of what might be obtained by reasonable investment of such a sum), then the annual interest cost would be £3500 x 9/100 £315 per annum.
In the case of a vehicle bought with the aid of credit facilities the interest repayment would be much higher than 9 per cent per annum; probably as much as 15 per cent, but this would not usually have to be calculated on the full £3500 because a deposit would have been paid, either in cash (the proprietor's capital) or by partexchange of another vehicle. An exact assessment in such circumstances could be made by calculating interest on the capital deposit at 9 per cent and adding the annual interest payment due to the finance company, which will have been shown on the credit agreement.
Either way, this important item must be included in the cost calculation.