Reckoning With Averages
Page 54
Page 57
If you've noticed an error in this article please click here to report it so we can fix it.
IT is almost true that the " average " does not exist. You may reckon average figures for the weekly cost of operating a vehicle, but it is unlikely that the real expenses will ever tally exactly.
I come across this sort of thing many times in connection with "The Commercial Motor" Tables of Operating Costs, the figures in which are, as I have so often stressed, based on averages. An operator will tell me that his experience of costs is exactly that laid down in the Tables, but then he adds that he pays a little less or a little more thrhis insurance, that be gets his petrol fcl. per gallon less than the figure used in the Tables, that his garage rent is only 5s. instead of 10s., or some other qualification which negatives his original statement. There is always something a little different; there is never a perfect example of the average.
When dealing with the average in assessing costs of operation, or the charges to be made for hire, care has to be taken lest it be supposed that the average figure actually applies. It may really be quite a long way out. At the same time, appreciation of the meaning of the term " average " is important in relation to any problem of costs and charges.
No Need to Debit
For example, I showed in an article which appeared in the February 22 issue that a haulier having calculated standing charges and built up a schedule of rates on the basis of a 44-hour week had no need to debit the customer with any extra expenditure on wages if the 44 hours were exceeded. All the standing charges would be accounted for by the time the 44-hour week' was A36 completed. If the working week extended beyond that, the additional time worked cost wages but nothing for standing charges.
The weekly standing charges arising from the operation of a 5-ton lorry comprise: Tax, 14s.; wages, £5 16s.; provision for insurance and holidays with pay, 10s.; rent, 10s.; insurance, £1 4s.; interest, 16s.; depreciation (I am assuming that all the depreciation is treated as a standing charge), £2 18s. 6d.; maintenance (d), 16s. 6d. The total is `£13 5s. per week. Reckoning that the establishment charges total £3 5s. per week, the total of fixed charges is-£16 10s. The cost per 'hour, assuming a 44-hour week, is 75. 6d.
4s. 20. Reduction
The additional cost for every hour over 44 up to 52 per week is that involved in wages-3s. 31d. per hourso that for every hour the vehicle works beyond the 44 there is a reduction amounting to 4s. 2.0.
Let me work it out in another way.
I will continue to regard £16 10s. per week as the total of fixed charges. The mining costs per mile comprise: Petrol, 6.20d.; oil, 0.24d.; tyres, 1.90c1.; maintenance (e), 1.66d. The total is 10d. Now let me calculate the total cost of operating a vehicle for a 44-hour week, assuming it runs 240 miles in that time. The cost in respect of time is £16 10s., and I add for 240 miles at 10d., £10. The total cost is therefore £26 10s.
Taking profit at the rate of 20 per cent, on cost, the total weekly charge for time will be £19 16s., and the charge for mileage, 240 miles at Is., £12. The total revenue is thus £31 16s. The cost per week is £26 10s., so the net profit is £5 6s. per week.
If it be necessary to -work two hours overtime four nights a week, the grist at 3s. 31d. per hour will be £1 6s.. 4d. The total cost on account of time is thus
£16 10s., plus El 6s. 441, making £17 16s. 4d. Assuming that the mileage of 240 per week remains unaltered, the cost per mile will remain at 10d. and the total cost of operation becomes £17 16s. 4d. plus £10, making a sum of £27 16s. 4d.
The operator will presumably continue to charge at the rate of 9s. per hour and ls. per mile. Fifty-two hours have been worked, the revenue from which will be £23 8s. plus £12 for 240 Miles at Is. The total revenue is £35 8s. compared with a total cost of 1:27 16s. 4d. The profit has risen to £7 Ils. 8d., so that eight extra hours of work have earned an additional profit of £2 5s. 8d., whereas the extra cost is only £1 6s. 4d. He has made profit at the rate of is. 81(1. per hour as . against Is. 6d.
The other side of the subject needs greater ventilation than the one with which I have just dealt, namely the weeks when instead of having to work overtime, the vehicle and its driver are engaged for only some hours.
36-hour Week
Suppose, for example, a week during which the haulier can charge for only 36 hours but still runs 240 miles. His charge for 36 hours at 9s. per hour is £17 2s., plus 240 miles at Is., £12, total £29 2s. Unfortunately, his costs per week do not diminish because the vehicle is engaged for only 36 hours. They are still E16 10s. per week and £10 for 240 miles. The total is £26 10s. per week, and the net profit is only £2 12s. That is quite inadequate as it represents only a fraetion over 9 per cent, on the cost.
An operator nearly always experiences these variations of the number Of, hours worked per week. If the vehicle" works 52 hours instead of 94, the profit increases out of all proportion to the time, but if the week. comprises only 36 hours, the.profit is almost insignificant. It is important to examine the possibilities of working throughout the year and to assess the profits on that basis.
This brings me hack to my opening— the meaning and application of theterm " average." By way of an example. it is of interest to discuss the carriage Of furniture. A peculiar feature of furniture removing, so far as the rank. and file of that industry are concerned, is that the average weekly employment of a vehicle is aboul 36 hours. I do not mean that 36 hours per week is the most that any operator can do. On the contrary, 1 know that that is not the case: every remover experiences weeks when he can operate a vehicle for nearly double that period.
Short Weeks' On the other hand, it is equally true that there are many weeks during which the work done by his vehicle,:assu'ming that he confines himself entirely to removals, falls short of 36 hours. There may be. occasions when the• vehicle hardly goes out at all.: My assessment is proved accurate if the remover takes a long period—say. 150-200 weeks—and works on that hasiS. He will probably discover that in 200 weeks his three vehicles have worked 21,436 hours in all. That is an average of 7,145.3 hours petvehicle. for the 200 weeks, and 35.7 hours per week, roughly an average of 36.
An incident which .brought this subject forcibly to my 'mind occurred recently When I met a remover who asked me ‘143. ;suggest a rate for a particular job_ The lead distance involved was eight miles. A period of 31 hours was required for loading and 24 hours for unloading. He had taken the travelling time, through a congested area, as one hour, so that the total time was likely to be seven hours..
It is usual, when making calculations of time and .mileage figures for assessing charges, to assume that the Working year consists of 50 weeks of. 44 hours, so that the annual total is 2,200 hours. It is on • that basis that the figures: already used in this article (9s. per -hour. and Is_ per mile) have been decided.. .
Removers' Charges In the case of a furniture remover,. if it be assumed that 36. hours per week is representative,the number of hours per annum is not 2,200 but only A,800.: The charge per hour, which,. other things being equal, is in inverse .ratio to the numbec of hours per year, becomes Ils. instead. of 9s.
In case that ratio may be not fully understood, let me put it another way._ The usual assessment of hours is 2,200 per year and if the charge be .9s., the total revenue is 19,800s. When the number of hours is reduced to 1,800, it is still:necessary to earn that sum and the rate per hour which will apply is thus 19,800s. divided by. 1,800 hours, which 'gives 1 ls.
When I set out to answer the inquiry, I worked it out on the basis of seven hours at 1 is., which. is £3 17s, plus 16 miles at Is., which is 16s. The charge is the sum of the two, £4 13s. I should emphasize that the charge is to cover the use of the vehicle with only the driver. If there be other men-employed—and there usually are-provision must be made to cover their wages.
My remover friend took exception to my .figures and my.methods of calculation on the ground that it might be possible, on the completion of this seven-hour job, to send the vehicle out on another short journey which would he completed within the day. For that reason he insisted that my figure of 36 hours per week was wrong and that he could base his charges on 9s. per hour or less and still make a profit.
I pointed out that it was precisely in that way that a good • deal of ratecutting occurred in the removal industry. I told him that by towering rates for a special occasion he was seriously depressing the standard of charges S throughout the industry. A rate thus quoted was not "economic in normal circumstances, those I had in mind when I took 36 hours per week as the basis for a -calculation of his
particular rate. .
I went on to point out that occasions when it was possible to work two jobs in one day were rare. They do happen, but do not affect the fact that, taking the whole year, the operator's vehicle does not work for more than 1,800 , hourS, 36 hours per week, and to cover standingcharges and establishment expenses and.show a profit on time— apart from mileage—he must earn an average of lls. for every hour, or 396s. per week. • .A Dangerous Line
In the particular day in which he envisaged that he 'would do the job described and work another short run, he may have worked 11 hours. Because of this, he seemed to think that 9s. per hour, or less, would suffice. What he did not appreciate was that immediately he takes that line the 9s. per hour tends to become standard, so that his earnings will automatically fall from the minimum of 396s. per week and be insufficient.
The next day, possibly as the result of cutting his quotation so that he can work two jobs in one day,his vehicle may stand idle, so that in the two days he has worked only an average of 54 hours per day, which is less than my average of 36 hours per week.