An Operating Cost! ecords Quiz
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Second Article Relating, to a Discussion About the Form Which Operating C*s Should Take; Pre
liminary Entries
LAST week I commenced to relate e. talk I had with a youngster who had been given the job of revising the method of recording operating costs in relation to a. fleet of 67 vehicles. So far, there has been little mane in the conversation than the clearing up of sundry doubts in the mind of the inquirer as to the meaning of certain items of cost and how he is to get hold of the necessary basic information.
We have agreed on the need for keeping records relating to individual vehicles, as well as the need for simplicity, and especially for cutting out frequent repetition of items which are the same each week.
He has already himself raised a point to which I have often referred in these articles, namely, that if actual expenditure only be recorded week by week, then there are likely to be wide discrepanCies as between the apparent net profits earned per week per vehicle. I haVe promised to indicate how he will be able to avoid that pitfall.
" The first thing I would emphaaSse," I said, " is the need for the records of each vehicle to be self-contained." 'Whit exactly do you mean by that?" he asked.
Co-ordinating Essential Information
"1 mean that there are certain items of information which, in some systems of costing, are scattered, so that it is not possible, by one reference, to become acquainted with all of them. You will find in some systems that the cost of the vehicle and such items as taxation-, tyre sizes and insurance premiums are recorded separately. Now, the trouble there is that when you are checking over the costs of a vehicle, and you are in some doubt as to particular items, you have to refer to some other source of Intries to check ,your figures. I recommend that all this essential information should appear at the top of the costs sheet of the vehicle."
'But surely a considerable amount of space will be needed for the entry of this-information, and isn't it going to be a lot of trouble to collect the data beforehand?"
"As to space, there is plenty of room, because the analysis sheet which you will need to enter your operating costs will, of necessity, be a large one. So far as the trouble involved is concerned, you must have•the information available somewhere and you might just as well put it down on this analysis sheet as elsewhere."
"What is the sort of information you think should be Set out in this way? "
" First of all you want the registered number of the vehicle and, secondly, I should imagine, the, fleet Munber of the machine. Then there should be entered the date at which the vehicle was put into commission and the price which was paid for it. You must mention the make of vehicle and the pay-load it should carry. For ready reference, You will need the amount of annual tax and the Insurance premiums you are paying. Ail these items are of first importance. ' " Then, to assist in entering such estimated costs as I shall recommend you to enter, you should make reference to the tyres—giving the size and the price of a set—the figure for the number of miles you expect a set will run, and from that, the estimated cost per mile of tyres.
"You will also need a figure for the estimated cost of maintenance, and finally, collected in one column, the following items on a per week basis:—Tax, insurance, garage rent, interest' on capital outlay, and establishment costs. The total of these is the one item, weekly fixed charges; which we have already agreed should be assessed beforehand, so that individual items do not need repetition week by week."
"It does sound a lot to me," he objected, "but, perhaps, if you give me some idea of what the figures gre likely to be and how you work them out I might havi a better understanding of the matter."
"Very well," I said, "I will do that, and the best way is to take one of the vehicles in the fleet with which you are concerned. What is the type and size of vehicle which is most numerous? "
" Well," he said, " as a matter of fact we .have 43 10-ton six-wheelers, mostly of one make."
" Right, then, we will take one of those as an example."
"There is vehicle number 47," he said, " which is of that make and load capacity. Its registered number is ABC 123."
"Good' I said, " we have already four items out of that, seemingly, long list which I quoted and we have that information without referring to any records at all, " How long have you .had it? " • " About three years, I think," he answered. "But 1 should have to refer to the books to get the exact date,"
"Never mind that for the moment," I said, " we will make some assumptions, so that we can get ori with the job. Suppose I take it that it was purchased in August, 1939, and that you paid £1,675 for it. Do you know, what the tax is? "
"Yes," he replied, "it is £110 per year and that amount happens to be exactly the same as the insurance premium."
Tyre Particulars that are Needed "Good," I said, "we are getting on fine. Now, what size tyres are fitted and have you any idea what a set is costing to-day? " " Wait a minute," he said " Why do you ask for the price of a set of tyres to-day? If I had started to keep these records when the vehicle was new. I should have entered the tyre price at that date and, presumably, that would still be recorded at the head of the sbeety " Not at all," I answered. " In the first place, we are dealing with a sheet which is made up annually,. so that any alteration 'in such items as tyre prices and so on would naturally be recorded at the beginning of each year." "Do you Mean to tell me," he asked, "that you are expecting to get a complete set of records for the operating costs for the whole year on onc sheet of paper? "
"Certainly," I answered_ " That is quite easy and is, in fact, the usual practice amongst operators who keep their records in this form."
"But don't I make the entries daily? " he questioned. "No, it will be sufficient if you make your entries week by oveek, notwithstanding the fact that your drivers' log sheets are made out daily. But what about the size of tyres and prices?"
" They are 36 by 8," he said, " singles on the two front wheels and twins on each of the four wheels at the rear, that is 10 tubes and covers in all per vehicle, and the price of a full set is, to-day, £125."
" While we have that figure in our minds," I continued, " it would be a good idea to deal with the next two items on the list I have before me—what mileage you expect to get from a set of tyres and, from that, what • the cost per mile for tyres."
" I'm afraid," he replied, " I've not been with the firm log enough to answer that question."
" Never mind about that," I answered. " We will take a figure of 25,000 miles a set. If it's not in accordance with your firm's experience you can correct the figures accordingly. All that I am concerned with is in getting you to understand the methods. If you reduce £125 to pence and divide by 25,000 you 'get a figure of 1.2d. per mile for tyres. Just make a note of that."
"Now, I haven't the least idea," he continued, "where I am to get the next figure from, that is estimated cost per mile for maintenance.'
" For that," I said, "I should reconimend you, for the time being, at any rate, to take the figure you will find in The Tables of Operating Casts."
" Well, there I am stumped again'," he replied, " because, first of all, you have two figures for maintenance, one you call d and the other you call e, and, moreover, your rnaiutenance d differs according to the number of Ales a vehicle covers per week. I have not been able to understand why that figure should fluctuate as it does."
"Do you not find the explanation which is given in the introduction to The Tables sufficiently clear? " I inquired.
A Maintenance Anomaly Explained " No, I still don't understand why there should be any difference in the cost of maintenance for a vehicle which runs 400 miles per week and that of one which runs 800 miles per week."
" That is just the point," came my answer. "There is no material difference between this maintenance d, whether the vehicre runs 400 or 800 miles per week."
"But in your Tables you give it as 0.57d. for 400 miles and 0.29d. for 800 miles," he butted in, " Exactly, but that is cost per mile, not cost per week. What it really boils down to is that the cost per week for maintenance d is given as being 19s., which is 0.57d. per mile for the vehicle which runs 400 miles but is 0.29d. per mile if it runs 800 miles per week."
" But what does that 19s: per week cover? " he asked.
" It covers washing the vehicle down twice a week, thoroughly greasing it twice a week, and making such adjustments as are recommended in the vehicle maker's instruction hook at the intervals stated.
"You may find that, in your, establishment, the cost is not so high and in .time to come you will probably wish to modify the figures in accordance with that experience. Thatil then, however, I suggest you use the figure in these Tables.
" How many miles a week does this vehicle ABC 123 usually average? " " About 800," came his quick reply.
" In that case the figure for estimated maintenance per mile which you will put down on your sheet is 0.29d. plus 1.55d., that is 1.84d. pec mile. "Now we come to our weekly fixed charges. First of all there is the tax, which you say is £110 per annum. Iii you divide that by• 52 you get £2 2s. 44. per week. . "Conveniently, the amount for vehicle insurance is the same, £2 2s. 4d. per week. The next item is garage rent." "I don't think we have any separate item for garage rent," he interrupted. *' The rentals we pay for our main and several depots are not divided so as to show the amount which should be allocated to garage and the amount for repair depot, offices, storage and other space, so I don't see how I can fill that item n in."
" Well, in my opinion," I answered, " there should be something set aside for that and I don't think it will do any harm to assume an amount, subsequently deducting it from the total rent which, as I shall point out to you soon, is part of your establishment charges. I recommend that, in the case of a vehicle of -this size, you make it £26
per annum, that is 10s, per week garage rent.
Interest EasilV Arrived at "Next comes interest on the capital outlay on this vehicle. And, by the way," I continued, "this is art example of how convenient it is to have all the figures relating to a particular vehicle set out at the head of its operating costs record sheet. You can calculate the various items straight away without having to make any cross references, or having to look up entries in other books.
"I have down here £1,675 as being the purchase price of this 10-touner. In order to arrive at the figure for interest you must first deduct the value of a set of tyres," which leaves you £1,550; four per cent. on that is 462 per annum, which is £1 3s. 10d. per week. The total of your weekly fixed costs is thus £5 18s. 6d."
"But," he said, "you have missed something out."
"What is that? " I questioned. "You don't mean wages, I suppor, because we have already agreed that they fluctuate so much that we cannot conveniently include them in the weekly fixed charges."
" No, I mean establishment charges."
" Did I say those should be included in this weekly amount? " I asked.
" You did," he replied. • " Then I was wrong," I said, " because, above all things. I always insist that the vehicle operating -costs should be kept entirely separate and establishment charges added independently, so that we had better leave establishment charges out and keep to our four items just described." " What about these establishment charges? " he asked. " That is one of the big items that I really want your advice about."
The description of holv I explained establishment costs will have to be postponed until a subsequent article. S.T.R.