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ALL-IN COSTS OF FURNITURE REMOVALS•

3rd December 1948
Page 43
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Page 43, 3rd December 1948 — ALL-IN COSTS OF FURNITURE REMOVALS•
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Which of the following most accurately describes the problem?

EXAMINING the final figures in the analysis of vehicle operating costs, as set out in the accompanying schedule, which was published also last week,the operator who has not made much study of costs will immediately find what seems to be trouble. He will note that of the four weeks concerning which data are -given in. the schedule, no two are alike as regards cost per mile and only two are alike in respect of cost per hour. • He will ask how he is going to be able to cost a job when in 'one week, the second of the four, the cost per mile is given as 4.22d., say 4fele and the cost per hour as 3s. 24.d.-, yet in another week the cost per mile is 5.45d., say 5i-cl.. and the cost per hour is 4s. 6d. He would say that, if he were quoting for a job involving running 100 miles and lasting 10 hours, then, according to the figures for the second . week, the cost would be 67s. 3d. and, according to the third, it would be 90s. 5d., or nearly 50 per cent. more.

Why the Discrepancy in Costs ?

To find the reason for the apparent discrepancy let us take the figures for cost per mile. In the first week, the amount of fuel poured into the tank was 19f gallons. (It is to be assumed that it was intended to put in 20 gallons, but found impossible as the tank was full when 19f gallons had been delivered.) On the other band, during the second week, only 12 gallons were taken into. the tank. The difference in mileage, as between 252 and 216 respectively, is not comparable with the difference in fuel, and the assumption is that the quantity put in altogether was _much more than was necessary, especially on the first day, hence the variation in cost per mile. The operator should make a mental note of that.

Again, in the third week (the 51st week of the year), there are 26 pints of oil, costing £1, as against the more usual 1 pint costing Is. That difference accounts for the jump in cost per mile to 5.45d., or nearly 51-cl. • .

On the other hand, during the last week the cost per mile was actually less than 4d., the reason being that a smaller quantity of fuel than usual was put into the tank. It was probably more nearly empty at the end of that week than it was at the end of the week before, so that actually more was consumed than was put in the tank. That fact does not show iii the figures.

The cost per hour varies because the number of hours per week changes. It is higher in the third line of figures, at 4s. 6d. per hour, because the number of hours worked was only 30, and it is least in the second and fourth line of figures, 3s. 21d., because the hours worked during those weeks were 42, rather more than usual.

The operator studying his own figures and observing similar discrepanciesshould take these things into consideration. 1 do not mean that he should set himself to make elaborate calculations to discover the cost, because that is unnecessary. The quickest way, when he has been keeping his accounts for some half-dozen weeks or so, is just to take from time to time an average of the cost per mile and the cost per hour. and use the average figure for his quotations, rather than an actual figure for a particular week. At the end of a year, as shown in the 'schedule, he will have data which, because the cost figures have been collected over a sufficiently lengthy period, will be near enough to actuality for them to be taken as they stand. It is •seen that cost per mile throughout the year has averaged 4.27d. and cost Per hour 3s. 9d. The fact that that is the same as the 3s. 3d. quoted during the first week, indicates that the average number of hours per week worked throughout that year has been 36, and that is a useful figure to have in mind.

Bear in mind all the time that no figures for cost can be entirely accurate. The figures for cost per mile in this schedule are given to two places of decimals. Actually, it would be absurd to take that second place of decimals into consideration when using the figures as a basis of charges. If I were using these figures, I should takeinstead of 4.65d., 4d.; instead of 4.22d., 4.1d.; instead of 5.45d., Side instead of 3.96d., 4d. Those approximations are more than sufficiently accurate for the purpose in view.

If there be discrepancies in these resulting figures of cast per mile, when using estimated figures, which, of course, is what I recommend, let us see how much greater the discrepancy would have been had we relied upon actual figures. In the first week the total cost would have amounted to £92 6s. instead of £4 18s. 6d., and the cost per mile would actually have had to be set down as 7s. 4d.

On the contrary, during the second week the total cost would have amounted to £2 6s., instead of £3 16s., and the cost per mile would have been 1.80d.--rather more than td.—instead of 41d. In the third week, there is a substantial amount debited to actual maintenance costs and the total for that week would have been £31 15s. 9d.. instead of £4 7s. 3d.. and the cost per mile nd. instead Of 5lcl.

Use Estimated Figures

Finally, in the last week, the total would have been less than ever, amounting to no more than £1 7s. 6d. and cost

• per mile to lid. Those are variations and divergencies which cannot be assimilated by any rough system of averaging: Those figures are completely useless as the basis for assessing charges, hence the need for using estimated figures at ,least for some time, until actual figures begin to line up in accordance with the estimated ones, which for the time being are nearer the truth.

In course of time—say, at the end of a couple of years— the actual figures should be totalled and divided by the aggregate mileage, and the result of that calculation -checked against the estimated figures. Suppose, for example, after of couple of years of experience, the actual cost of tyres divided by the mileage comes to Id, per mile, instead of lid., the operator would be justified in making a correction in his estimated figure for the cost of tyres for the subsequent year. He should not, however, drop immediately to Id. per mile, but should take a mean, say, lId. per mile. for the next year, at the end of which he can make another change. The same reasoning applies to the total of actual maintenance costs.

Now let us consider labour charges. 'Mere are four grades of workman employed and the rates of wages am tt9

different for each of them. Assuming a Grade I area, the driver's basic wage for a 44-hour week would be £5 2s., those of the foreman, £4 16s. 6d., the packer, £4 13s. 6d., and the porter, £4 I Is. 6d. In addition to the net wages there are other. things to be taken into consideration, and I propose to deal only with the first three grades and leave out the porter.

The driver has a basic wage of 15 2s, for a 44-hour week. To that must be added provision for insurances. First, there is the employer's contribution of 4s. 2d. per week in respect of National Insurance, also the amount of the premium to cover claims against the employer under common law, for these have still to be met; for that 1 assume a figure of 9d. per week. Then there is the question of holidays with pay and if I take approximately a fortnight out of each year, that means I must add a fortnight to the net wage on that account, which is approximately 4s. Id. a week. The total to be debited against the driver is thus £5 I I s.

Driver's Time on Removals

He does not, however, necessarily work on removals for 44 hours per week. He may, as shown in the accompanying schedule, do 36 hours one week, 42 the next, then 30, and 42 the next week, but for our purpose it is not much use to try to assess the wages bill in that manner, varying the charge per hour each week, according to the number of actual hours to be debited against removal. What must be done in this case is to make one more estimate, this time of the average number of hours which the driver will work on actual removals. Individual operators' experience may differ, but I will take the figure already assumed in the case of the vehicle costing-an average of 36 hours per week. In that case I divide £5 Ils. by 36 and the amount to be charged for the driver's wages in actual removal work is 3s. Id. per hour.

For the foreman, the £4 I6s. 6d. must be increased by 4s. 2d. for National Insurance, 9d. for common-law insurance and 3s. I Id. for holidays with pay, making £5 5s. 44., which, on a 36-hour week, equals 2s. I Id. per hour.

For the parker there is first £4 13s. 6d., plus 4s. 24., plus 9d.. plus 3s. 9d., giving £5 2s. 24., which for 36 hours equals 2s. 10d. an hour. Those I put forward as basic figures for the cost-not the charge-of tabour in connection with the operation of a vehicle on removal work.

Simplicity the Mm I do not suggest that there should be an attempt to segregate time spent on actual removing from time spent in. the yard doing odd jobs. I am still aiming at simplicity. We next have to consider establishment charges. I have checked the items of establishment charges which are liable to be encountered in this branch of the haulage industry and find that they are similar to those which I have put forward from time to time in the ordinary way, but with three additions. The full list is as follows:-Office rent, office rates, lighting and power, heating, water, telephone, audit fees, law costs, sundries, fines, travelling expenses (car, etc.). clerical wages, national insurance (clerical staff), management, depreciation of garage fixtures, subscriptions to associations, bank charges. ferries, weighbridges, parking,

BIO interest on hire purchase, printing and stationery, insurance of buildings, maintenance of buildings, bad debts, claims, interest on capital, postage. A and B licences, advertising, goods-in-transit insurance, yard labour (wages), pension and benevolent fund subscriptions, renewal of packing material, packing cases, etc.

Furniture removers are in a more difficult situation, as regards establishment costs and theicallocation, than is the average haulier. As a rule, they have storage departments as well as removal departments, and it is not possible with any degree of accuracy to separate the establishment costs of the one from those of the other. Nor, 1 imagine, would it be possible for the management to make more than a very rough estimate of the proportions of its time and energies devoted to one or other of these two main departments. Some sort of an approximation is necessary.

I have not yet, in all my experience of haulage, come across any fundamental principle which can be applied to the allocation of establishment costs amongst the different activities of a concern. The most satisfactory way, as far as my experience goes, is to deal with them on the basis of total revenue and 1 am going to suggest that in the case of a furniture remover his total of establishment costs should be divided between the removal department and his storage department in proportion to the total revenue from those two departments.

Assuming that the operator keeps a record of all his establishment costs which, in effect, is all his expenditure other than that for which provision has been made, in reckoning the cost of his vehicles and the labour directly involved in the operation of those vehicles, his first step must be to divide that total in such a way as to load the two departments in proportion to their revenue-earning capacity.

Allocating Establishment Charges

Assume, for the sake of argument, that 40 per cent. of the business is storage and 60 per cent, removals, then 40 per cent. of the total establishment charges should be loaded on to the storage department and the balance, 60 per cent.. on to removals.

Next comes another problem which is almost peculiar to this branch of the haulage industry, and that is the allocation of this 60 per cent, and the total of establishment charges against vehicles and labour. It is obviously not practicable to do as one would in an ordinary haulage business-that is to say, load each vehicle with its proper proportion of the total, That would obviously be wrong. because sometimes only two men are employed and on other occasions four or five.

in the little book on costing issued by the National Association of Furniture Warehousemen and Removers, it is suggested that these establishment costs should be divided among labour and vehicles, according to whether, in the opinion of the operator, the management of labour is considered to be more costly than that of transport, or vice versa.. I cannot see how any decision on that point can be reached and my suggestion is that the total of establishment costs to be debited to the removals side, which may be, as suggested, 60 per cent, of the grand total, should be assessed as a percentage of the total cost, i.e., of vehicles and labour. Assume, for example, that in a concern having five vehicles the total cost of operating them, plus the cost of labour (drivers, foremen and packers) Vere £6,000. If the grand total of establishment costs were £2,500, of which £1,500 was to be debited to removals, that £1,500 would represent 25 per cent: of the labour, and vehicle costs. 1 suggest that when the cost of a removal has been ascertained from the above figures of vehicle and labour cost, the 25 per cent, for establishment costs should be added to that amount in order to ascertain the total cost of the job.

Now I will take an example, using the above figures which. I must once more emphasize, are not to be taken by any reader as a basis for his own calculations. Some items may be very wide of the mark. I have outlined the method whereby the actual figures can be ascertained, and those should be used in the following example:-


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