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"If you want to be able to buy a new

30th December 1949
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Page 57, 30th December 1949 — "If you want to be able to buy a new
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Which of the following most accurately describes the problem?

machine out of these savings, you will have to pat aside twice as much, on account of depreciation, as is suggested in the tables, and that is what I mean when I say that, to sOme extent, buying a second-hand machine increases the item of depreciation. The best thing to do is to leave depreciation at the amount I have recommended and make such additional provision as you deem advisable for the purpose of new vehicles as and when you need-them. If you attempt to manipulate the tables you will offset your fair schedule of operating costs, which are to be regarded as the basis for assessing the rates you must charge. I think you will agree to the figure in the tables, which is 1.48d. and that, apart from lubricating oil, completes the total of your running costs."

I proceeded to set them down on paper, as follows:

Insurance Payments

• "I will go through them quickly for you. What is the annual tax on your vehicle ? "

Thirty pounds."

" That is about 12s. per week. Insurance ? "

"Oh, that is another thing. I take out a policy to cover only third-party risks, fire and burglary," he said, " and I find £12 per year to be sufficient for that."

" That is not a good idea, you know," I said, "but we won't go into it now. What is your garage rent ? "

"Five shillings per week."

"About the same as you pay for insurance, calculating the amount weekly. That leaves only interest, which is the money your capital would have earned for you if you had invested it in safe securities and not bought a lorry with it. Calculation of the exact amount is rather intricate, and I won't trouble you with it .except to tell you that at the present time you can take it at the rate of 3 per cent. per annum on the £250 you paid for the vehicle, which is £7 105. per annum: say is. 6d. per week.".

I then set out for him the schedule of standing charges, including the appropriate amount for wages of the driver. The items were: Licence, 12s.; wages and insurance and provision for holiday pay, £5 16s.; garage rent, 5s.; insurance, 5s.; interest, Is. 6d.; total, £6 19s. 6d.

" Now, I said, we have a sound basis of figures from which we can calculate your actual cost per mile run. You say you are doing 300 miles per week, then to find the cost per mile you have to spread the total of standing charges, namely, £6 19s. 6d., over 300 miles. That comes to just over 50."

Not Covering Costs

"You must add that to the running costs (4.81d. per mile) to arrive at the total cost per mile. Actually, the amount is 10.41d., which is a little short of 101d. per mile, so that you see if you are charging only 10d. per mile you are not only not earning a profit, you are not covering the operating cost of your vehicle.

"In view of the fact that there seems little likelihood of your being able to increase your charges to this customer. since you say he is already quibbling about .the rate he is paying you, and bearing in mind what you have told me when you said that 300 miles was all you could gat work for •just now, the obvious thing then is to find more work for the vehicle. You will then be able to reduce your charge per mile."

This surprised him, so I explained: " Your standing charges amount to £6 19s. 6d. per week. We divided that by 300 to get the cost per mile for these standing charges. and we get 5.6d.

"Suppose, for the sake of argument, you were able to find work to keep your vehicle running 600 miles per week. Then the cost per mile of the standing charges would be only 2.8d. per mile; and if you add that to the running costs of 4.81d. per mite, which amount is not affected, if anything, it decreases a little as the mileage increases. Your total cost per mile becomes only 7.61d., so that at that rate there would be a small margin for establishment costs and profit between your actual vehicle-operating cost of 7.61d. per mile and the revenue of 10d. per mile, which you are at present earning."

There must be many operators who are under similar misapprehensions about the costs of operation of their vehicles. Often they are running a haulage business as a sideline to their niain businesses. Any loss they incur on transport work may be obscured by

the total turnover. S.T.R.

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