• SPECIALIZED COSTING for the removal trade
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MEMBERS of the National Association. of Furniture Warehousemen and Removers have been provided with a booklet which gives the fullest information as to how both costs and rates shouid be assessed. I do not imagine that the Association • would be reluctant to pass on a copy of that booklet to non-members, as it is obviously to the common. good that all engaged in that branch of the industry should make estimates in the logical way pre.
scribed m that booklet. • s However that may be, I do receive inquiries on the subject from time to time.; The latest of these seems sufficiently interesting to justify its .discussion in these pages,
. The writer asks me to give him help in connection with the following-. (a) local removals where the mileage will probably. amount to 10 miles; (b) journey removals to include subsistence where necessary; (c) caSes where a vehicle is hired by the hour. day or week with driver only, or driver and mate.
There are 'certain differences of approach' to this question of costing, as between the business of furniture removal and that of general haulage. . They are not what might be called fundamental differences, being rather of detail, but are nevertheless important. .
CoSts tor t,000-1,200, Cubic Ft. Van Let me begin by scheduling some cost figures. . I will elaborate upon the points of difference as I come to them. I am going to take as an example a vehicle of 1,000 to 1,200 cubic ft. capacity, so designed and built that its unladen weight comes within the limit of 3 tons, that is to say it is a 30 m.p.h. vehicle. Now the initial outlay on a vehicle of that type would average £1,085. • The first thing to •do, as usual, is to assess the depreciation. First, deduct the value of a set of tyres, £85, leaving £1,000. From that' again deduct what is called the residual-value which in effect is the amount the operator might expect to obtain for the vehicle on its sale. 1 will assume that to be £100. The net figure from which depreciation must be calculated is
thus £900. • .
Taking a life . of 150,000 miles and dividing that into £909 1 get 1.44d. per mile, which is the basic figure for depre ciatiOn. That, however, would apply, strictly speaking, only when the vehicle is running not less than 24,000 miles per annum Few furniture removal vehicles in the hands
Of the ordinary smalloperator cover that mileage per annum. Twelve thousand miles per annum is a fair average; that is 12,000 miles less than the standard of 24,000 miles per annum To allow for obsolescence I add 5 per cent. to the basic figure for depreciation for every 1,000 miles that the average annual mileage falls below 24,000,. That means that 1 milk. add 12 times 5, or 60 per cent., to 1.44d., giving me 2.3d. per mile as the actual allowance on account of that item.
Now, furniture removers point out that this -method of assessing depreciation, whilst it may be all right for the general haulier, has the disadvantage, in furnitOre removals, that it penalizes the long-distance removal because it loads the vehicle with an amount assessed on the basis of shortdistance removals. Furniture removers, therefore, prefer to split the depreciation, taking one half of it into standing charges and the other into the running costs.
• They would take the £900 and divide it by six-1 am taking depreciation over six years—thus reaching a figure of £150. Half of that, £75, is allocated to standing-charges and half of the 2.3d, per mile, 1.15d., to running costs. Even according to that method the long-distance furniture removing job is penalized, but the amount now is only a fraction of a penny, too _small in my opinion to be of importance.' In this case, then, I shall take £75 in the standing charges and .1.15d. in the running costs to cover depreciation.
. It would perhaps be as Well if I make it quite clear here that I am not'adhering rigidly to the method of costing laid down by the. N.A.F.W.R., but only generally, applying the principles they prefer but using my own methods of arriving at the figures.
E25 a Year Interest
While we have this initial outlay figure in our minds it might be as well to -note the interest. Taking that at 2* per cent. per annum I get just over £25, which is nearly 10s. per week.
The cost of petrol is another item which gives rise to some small difficulty. It may be that on a long-distance haul the fuel consumption will approximate to 11 or 12 m.p.g., whereas on short-distance removals, town work, etc., the figure might be 10 to 11 m.p.g. Allowing for petrol at Is. lid, per gallon, the cost in bulk, that would mean the host per mile for fuel might vary from 1.90d. to 2.30d. If take an average of 2.10d., which I must, I am again penalizing the long-distance remcntal and favouring the shortdistance operator and this time to the extent of one-fifth pence per mile.
However, it will be found before I come to the end of this figuring that there are other items which sway the balance in the other direction so that in the long run no harm is done.
Another item of running cost special to furniture MEMing, is maintenance. The bodywork on a furniture van is comparatively expensive and is easily liable to damage, so that there must be some provision made for that in our costings.
Instead of the average figure of 1.65d. per mile which is quoted in "The Commercial Motor.' Tables of Operating Costs for a vehicle of this capacity-5-ton loads—running a comparatively small 'annual mileage, 1.84d. per mile would more nearly meet the case, and that is the figure I propose to take, Establishment Costs
It is in regard to establishment costs that the biggest departure from standard practice must be made, in order to meet the special conditions of furniture removal, and here I propose to refer to the booklet entitled The Cost of Road Motor Vehicles in the Furniture Removing Industry" as published by the N.A.E.W.R.
According to the method recommended in that book, what I would call estabtishment charges or overheads are split into two. First come what are called "administrative expenses," concerning which it is stated that "the contractor should carefully consider what additional costs he incurs in the actual control of his vehicles in use, e.g., extra yard labour, garage stores, cleaning and servicing the van equipment, handling lift vans, etc.
The payment of some or all of these charges are included with those of establishment charges, and the calculated amount should therefore be deducted from the total under that heading and then divided for the proportion to be charged for each vehicle."
Some Management Expenses
Under "establishment charges" the compilers of this booklet' point out that there are numerous items of overhead charges which may be incurred in the management of a removals business. These wOult1 include' the drawings of active proprietors' (not 'exceeding a 'manager's salary); salaries and expenses of managers, estimators and clerical staff; the costs of servicing cars; rent, rates, lighting, heating and maintenance Of offices; 'telephone, stationery, postage • and advertising charges; expenses of legaladvisers and audinirs; association subscriptions, pension and benevolent fund contributions; bad debts, interest on Loans or on trade , capital It is next pointed out that in a combined business of removals and storage there will have to be an apportionment of establishment charges with some regard to the amount of work carried on by each. The total sum must therefore be divided in that proportion and the appropriate amount set against the removals branch.
434 The latter amount needs further sub-dividing, some of it being included as an item having reference to the operation of the vehicles and some of it debited against labour.
At first glance such splitting up seems unduly complicated. -That is not so, however, except that perhaps the splitting up of the items included under administrative expenses is hardly necessary. It should be enough, in my view, to take establishment costs as a whole, including those administrative expenses, segregating the appropriate proportion for the storage part of the business, and then dealing with the division of the balance amongst vehicles and labour. That is the way I prdpose to work it.
Some may ask why there is this need to differentiate between establishment costs for labour and for vehicles. There is, I think, justification because the tabour employed per removal differs so much as between one job and another. Sometimes a driver and mate can do the job. On another occasion six men may be needed, so that if establishment costs were allocated, as is customary in general haulage, to vehicles only without regard to labour, there would either be a considerable over-charge when only two men were required, or an under-charge when six men were employed.
I shall take it that the amount of establishment costs to be debited against the vehicle is £135 per annum. The balance is equivalent to 25 per cent, of the labour charge. That is to say, in assessing the vehicle costs I shall take 035 per annum for establishment costs and in assessing labour I shall add 25 per cent. to the net amount of charges so as to provide for the balance of establishment cost.
The establishment casts thus assessed and allocated bear hardly on short-distance removals and give an advantage to long-distance, and in this way correct the opposite tendency which has already been observed in respect of depreciation and fuel costs.
Cost Per Hour
Now let us see what wb have in the way of cost figures so far as we have gone. First,. the fixed charges per annum. The tax will amount to £35. For garage rent / will take £25, for insurance premium £25, and for interest on first cost at 2a per cent, per annum a further £25. Establishment costs amount to £135 and there is half of depreciation at £75. The total is £320 per annum. Taking a 44-hour week and a 50-week year there is a total of 2,200 hours per annum, so that the cost per hour is 2s. lid.
Now for the running costs. Of those which have already been quoted, there is petrol at 2.td. per mile, maintenance at I.84d. per mile, and the other half, of depreciation at I.15d. per mile. For lubricants I propose to take 0.16d., that being the figure from the Tables. For tyres, assuming 24,000 miles to a set casting £85, 0.85d., the total is 6.td. per mile. It should be noted that nothing has been said about wages. In dealing with this 1 propose again to refer to the book already mentioned.
Wage rates for workers in the furniture removal industry are, of course, fixed under the Road Haulage Wages Act and the amounts can therefore easily be ascertained. It is, howevet as the compilers of this booklet point out, very important to work out what additions must be made to fix the real cost per hour per man.
These will comprise: (1) Payments made in respect of health, unemployment, employer's liability and third party insurances. (2) Cost of holidays with pay, spread over yearly total hours of employment. (3) Adjustment to cover the averaged increase of overtime hours. (4) Addition of an estimated cost of the yearly total hours of unremunerative employment from unavoidable causes. (5) Proportion of establishment charges allocated to the labour cost S as already explained. •
Thebooklet continues; "The total annual payments for the various insurance charges in respect of labour employment can be fixed with fair accuracy and the proportion of labour cost established at approximately 5 per cent. Holidays with pay will cost approximately another 5 per cent. The adjustment for an overtime average and for lost hours of work may vary with different conditions of work, but these charges are probably covered at 5 per cent.
"The percentage increase for establishment charges may vary widely under varying organizations of -management, but 15 to 25 per cent. is suggested as an adequate margin.
"A percentage increase of the hourly rate paid per man tnust be made in respect of these items, the total increase 'probably amounting to 30-40 per cent., i.e., a man employed at the wage of. 2s. per hour was actually. a charge to his employer at the rate of 2s. 7d. to 2s. 10d. per hour.
"Men's expenses and road money will be additional costs, but these are irregular charges and should be added as they arise or are anticipated when estimating the cost of any work to be undertaken."
Two Special Items
There are two more items of expenditure which have not yet been covered. The first relates to the need for provision and renewal of equipment and tackle required in removal Work and of the cases, wrappers, sheets, blankets, etc., needed to safeguard the loaded contents of vans during transit.
Further, a small percentage should be added when fixing the price for work undertaken, in order to cover the contractor's liability for claims arising under the removal contract.
Reverting to the original inquiry, the first question is as
to the cost of a local removal where the mileage would possibly amount to 10 miles. I have not been told how long the job will take or how many men will be employed, but I am going to assume that it takes 10 hours in all, that is to say eight hours for loading and unloading and an hour each way to run the 10 miles. I shall assume that in addition to Inc driver there are one foreman and two packers. The wage rates of these men are: driver, 2s. 3fid. per hour; foreman, 2s. 2Ad. per hour; packer, 2s. lid.
Here is the way to set out the items:—
That answers the first of my inquirer's questions. The others are dealt with in the accompanying schedules. In Schedule 1, 1 give an example of a long-distance removal, i.e., 200 miles out and home, with a total time of 20 hours. There are four men loading, that operation taking five hours, but for the rest of the time only three men are employed.'
It will tie observed that provision is made for the adjustment of the wage bill accordingly, also for subsistence forrn the men and garage for the vehicle. .
The third question requires two answers and these are given in Schedules 11 and III. In 111 show how to assess the rate of hire for a van with driver only, taking a limit of 40 miles per eight-hour day, and the charge is worked out per hour. In Schedule 1.11 I deal with the other part of the sarrie question, giving the hire rate for vehicle with driver and mate. S.T.R.