THE CASE C IE TWO BROTHERS
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SINCE the .;mblication of my articles on costing for furniture remOvers, which appeared in The Commercial Motor" on November 19 and 26 and December 3 last year, I have received a number of letters on the subject. One of these, from a Yorkshire friend of mine, could easily have been interpreted as a criticism, but it was obviously not meant to be.
His idea, I think, was that I 'should answer him direct, but the information he provided and the questions asked are of such general interest that their treatment at length is fully justified. The figures he sent me have been slightly revised to bring them :nto line with my general recommendations as to the procedure to be adopted when arranging commercial vehicle operating and establishment costs. They are set out in Tables 1, II and 111.
, My Yorkshire correspondent operates three vehicles on furniture removals and a certain amount of general haulage. They are a 5-tonner, a 2-tonner and a '0-cwt. model.
Table I gives the standing charges, but not quite as they were presented to me. In the first place, there were two
items which] cannot accept. They are: " A and B Licences,and " Goods in Transit Insurance.Both those items, in my opinion, are establishment costs, and I removed them from his figures
for standing charges and transferred them to establishment costs accordingly.
Secondly, he had omitted wages, and although there is usually justification for this, especially when assessing the cost of operation of furniture-removing vehicles—I myself omitted them when dealing with this subject—in this ease it simplifies matters to include them. Beyond that i have no comment to offer on the standing charges -as set out. Some critical reader may comment that it is my rule to take depreciation as a running cost. On that point 1 do not quite
agree. Depreciation appears as a running cost in "The Commercial Motor Tables of Operating Costs" because, in setting out average figures, that is the only really satisfactory way of dealing vtith it. In a particular case such as this, if the operator considers he would like to deal with depreciation as a standing charge, there is no objection to doing so In Table II are set out the running costs. The only comment here is that the heaviest vehicle, the 5-tonner, is least expensive to run, largely because petrol consumption is so much lighter. He tells me he gets 12 m.p.g. with the 5-tonner and an average of only It m.p.g. with the others.
In his figures for establishment costs, set out in Table III,
did a bit of juggling. It was necessary because some items were omitted with the request that I should insert them. The most important of these is "Directors' Fees." Some readers may think that in setting down £1,000 I have been generous. I do not agree. This business is ran by two brothers, partners, both of whom take an active and energetic share in the management and running of the business. For this reason it seems to me that £500 per annum for each of them is not an extravagant sum. It will be noted that I have added the "A and -B licences" and "goods in transit insurance " items which I lifted from' his figures for standing charges.
I received only those figures set down in the first column €14
Running Costs
Petrel at 2s. lid. Oil and greme Tyres thincenance
Totals TAB
of Table Ill. I was aware, however, that under the 'same management and using the same staff and buildings; etc., the brothers were running an associated business. In consequence, I had to deduct from the original figures what considered to be a fair proportion of the establishment costs which would be absorbed in taking care of that associated business. I took the view that there would be no need for an estimator's car for that allied busi ness. and that the item " as with " A and B licences" and " Goods in transit insurance," could be omitted.
I then allocated 'approximately one third of the amounts of the remaining items to that business, showing the net figures given in the third column, a total of £1,474 per annum, as the establishment costs of the furniture-removing activities of this company.
One of the things which this correspondent asked me to do was to set out
4.69 4.78 4.78 figures for cost per mile, cost per week, charges per mile, charges per week, and so on. in just the same way as they are set out in " The Commercial Motor Tables of Operating Costs." These figures are shown primarily in Tables IV to VIII inclusive. I am going to take this opportunity, for the benefit of readers in general as well as furniture removers, of explaining by a simple example in each case, how I arrive at those figures.
By way of a start. I will take the figure of 18.84d. per mile—the first in Table IV, reproduced on the opposite page. It is the cost per mile of operating the 5-tonner for 200 miles per week. The standing charges of that vehicle are shown in Table I as being £566 per annum. That is, £11 15s. 10d., or 2,830d. per week. If 2,830d. he divided by 200 I get 14.15d. as the cost per mile for standing charges only. To that I add the running-cost figure of 4.69d. per mile, as set down in Table H. This gives 18.84d. as the total operating cost per mile.
The figures in Table V are derived directly from those in Table IV.. 'faking again the first figure of £15 14s.. that is simply the multiplication of 18.84d. per mile by 200. the number of miles the vehicle is supposed to run per week.
Before E can deal with the details of figures in Table VI. I must provide for establishment costs and profit. The total of establishment costs was shown to be 11,474 per annum. Here I must -make the point that I am assuming for the
time being that this business is of • whole of this £1,474 must be debited against the vehicles.
the first thing 1 have to do is to divide that total sum amongst the three vehicles in proportion to their load capacity. The total payload is 81ton's, and if I divide £1,474 by 8 I get £173 per ton of payload per annum as being the amount to be debited in respect of establishment costs. That means that the 5-tonner must carry five times £173, or £865 per annum, the 2-ionner twice £173, which is £346, and the 1-toriner £260.
Now we have the complicated process of calculating the charge per mile of the vehicle itself.
I will deal first with the 5-tonner. To the total amount of standing charges per annum, £566, must be added the total of establishment costs, £865, giving a total of 11,431. That is the total expenditure on fixed costs per annum in respect of that particular vehicle. To that amount must be added 20 per cent, for profit, £286, giving me a total of £1,717.
This has to be earned by that vehicle on a time basis; that is, without any provision for mileage. That is £35 15s, 10d. per week, which is 8,590d., and if I divide that by 200, the number of miles the vehicle is running per week, I get 42.95d.
To that must be added the appropriate charge per mile run for each of those 200 miles, I get this from the running-cost figure of 4.69d. per mile (see Table II), which must be increased by 20 per cent, for profit, giving 5.63d. Adding this 5,63d. to 42.95d. gives 48.58d., or 4s.
The other figures in Table VI are calculated, in the same way. allowing the appropriate amounts for establishment costs and profit margin plus, again, the profit margin on running costs in every case. The figures in
Total Operating (To Nea (Various Wee Vehide No.
Miles per week 200 300 400 50D 600
L s.
15 '14 17 13 19 12 21 11 23 10 600 9.41
Table Vii are calculated direct from those in Table VI in exactly the same way as those in Table V are calculated from those in Table IV.
Turning again to the particular item I am discussing, the vehicle for which 4s. ()id. per mile must be charged running 200 miles per week will have to be charged at the rate of £40 10s. for the whole week. It should be noticed that in all these figures for charging proper Provision is made for establishment costs and a profit margin of 20 per cent.
Finally, Table VIII, which gives the figures for time and mileage charges.
The method of arriving at the figures here is quite simple. I take the first one of 17s. 11d, per hour. That comes from the £35 15s. 10d., the total amount per week derived from the addition of standing charges, establishment costs and profit in connection with the 5-tonner.
Now for. the question of hours per week. My correspondent, in the figures he gave me, quoted 240 working days per annum for the veh!cles. Knowing that the general custom with the furniture-removing trade is to set aside, whenever possible. Saturday morning for maintenance, I assumed that, whilst the total week was 44 hours, only 40 hours could reasonably he taken as the working week for the vehicle. It follows, then, that in order to get at the rate for the figure per hour, I must divide this £35 15s. 1.0d. by 40, and not by 44. It is by so doing that I arrive at the ,figure of 17s. 11d. per ,hour.
For the mileage charges I have taken
for 5 m.p.h. and over" the 5.63d. already quoted and turned it into the nearest round figure, that is, 6d. per mile. For under 5 m.p.h." I have merely added 25 per cent, to the 6d. per mile.
One point immediately arises from a scrutiny of the figures set out in these tables, and that is the very considerable discrepancy in the charges as between the 5-tonncr and the other two, which are of verV nearly the same tonnage. It seems unreasonable to ask 4s. an hour for a 5-former and only 2s. 6d. for a 2-tortner since, as everyone knows, the difference in cost of operation is nothing like so great. Considering these figures,
2 3 then, it appears that possibly in the case of furniture removing the establishment charges should be divided amongst die fleet, that is, not on the basis of the tonnage of payload, but on the cubic capacity. It will be interesting to see what difference this -makes. I propose to go into s.
13 18 15 18 17 17 19 17 21 17 s.
15 0 17 0 19 0 21 0 230
that next week, and into some other
particularly interesting problems • which have arisen from the study -of these figures.
For instance, my correspondent has asked .if, in my, opinion, his business is growing 'too fast. ,I replied• that I thought it was-not growing fast enough, and next week I propose to give my reasons.