Costing by Time
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arid Mileage prHE more I gain experience in the assessment of costs and charges and the more problems I have to solve in dealing with these subjects, the more confident I become that the solution of almost any of them can be achieved by the use of properly assessed figures for time and mileage.
During the past week I have had two differing inquiries which were answered by the application of the same principle. The two inquiries were the more interesting because one came from a C-licensee who was concerned about costs. , only, and the other from a small operator who wished to know what his charges should be. One dealt with the haulage of liquids in, tankers, the other related to a simple
ease of contract hire. . , .
" I had better begin by stating whit I mean by "time and mileage." The application arises from the basis of the costingof commercial-vehicle operation. Costs are made up of standing charges assessed on time, and running costs assessed on mileage. To ascertain the total cost, the figures for the standing charges, that is, the figures for time, must be taken out separately and added to the figures for mileage.
In dealing with the method and preparing it for application to a variety of problems it is convenient to assess the time on an hourly basis. In that way, the cost of any particular job is the number of hours multiplied by the cost per hour, plus the number of miles multiplied by the cost per mile. Thus stated, the procedure appears simple, yet, as I shall show, it is capable of being misunderstood and has therefore been disliked and mistrusted by the majority of small operators.
Liquid Distribution First let me state the two problems which I have mentioned. The first related to the distribution of liquid in tankers of 1,500-gallon capacity. The distribution area was zoned. The innermost zone was of 5-mile radius and the subsequent zones were bands 5 mites in width surrounding the inner zone. The biggest band was of 60-mile outer radius. The operator, a C-licensee, wanted some figures for cost per gallon in each zone. I will not go into full detail in this particular case, it will suffice if I give the data for the innermost zone and outermost zone.
As the vehicle is of an unusual type it is not practical to take figures from "The Commercial Motor" Tables of Operating Costs. Moreover, in dealing with both these examples I want to depart somewhat from the principles laid down in the Tables in relation to the allocation of depreciation and maintenance.
The initial cost of the tanker was £1,600. It was equipped with 35 by 71 tyres, costing £186 per set, so that the net s36 value less tyres was £1,414. Taking a residual value of £154, that leaves. me with £1,260 as the net value on which to Calculate depreciation.
I propose to split that item, taking half of it as a standing charge and half as a running cost. This is particularly necessary because the daily mileage differs between the innermost and outermost zones. For the standing charge I. therefore have £630, and if I take five years of life that is £126 per annum, or £2 10s. per week. The other half of depreciation as a running cost, taking 180,000 miles as the life, is 0.84d. per mile.
I have also split maintenance, putting maintenance (d) into the standing charges and leaving only maintenance (c) in the running costs. Readers who are familiar with these articles and with " The Commercial Motor" Tables of Operating Costs will appreciate that maintenance (d) relates to that part of the work which is carried out on a time basis. Maintenance (e) refers to work on a mileage basis.
Detailed Items Now for the detailed items: first, the standing charges per week. The tax will be ; wages, including insurances, etc., and provision for holidays with pay, £6 7s.; garage rent, 10s.; insurance, 15s.; interest, £1; maintenance (d). I2s.; depreciation (half), £2 10s.; overheads, £3. The total is £15 14s. per week. This is a small fraction over 7s. per hour running a 44-hour week.
For the running costs per mile, taking petrol at 3s. 4d. per gallon, an average figure, and allowing 11 m.p.g., I have 3.64d. for that item. For lubricants I take 0.18d. Tyres, running 24,000 miles per set, must be debited at I.86d., maintenance (e) 1.45d., depreciation (half) 0.84d. Total is 7.97d. My time and mileage figures for cost without profit are thus 7s. per hour and 7.97d. per mile.
Now for the innermost zone. I was told that it was practicable to make four deliveries per day of 8 hrs. The mileage covered in making the actual deliveries totals 50_ but account has to be taken of 50 miles dead mileage, 25 miles at each end of the day between headquarters and the depot where the fluid was taken into the tank, Eight hours at 7s. is £2 16s., 100 miles at 7.97d. per mile is £3 6s. 5d., so the total cost of that day's work is £6 2s. 5d. For that. 6,000 gallons of liquid have been delivered, so that the cost is 0.245d. per gallon, nearly id.
To deliver one load in the outermost zone involved a total mileage of 140 and 10 hrs. The time and mileage figures for this job are therefore 10 hrs. at 7s., which is £3 10s., and 140 miles at 7.97d., which is £4 13s. giving a total of £8 3s, For that expenditure, only 1,500 gallons have been delivered, so that the cost per gallon is 1.3d.
[he second case was that of a small operator who was ed to quote for the contract hire of a 30-cwt. van assuman average mileage of six per hour. In this case. the t of a new vehicle can be taken as £620. The tyres are by 6, which to-day cost.£120. The net cost less.tyreS therefore be £500. Taking £70 as the residual value, I left with £430 as the net cost on which to assess irecia tion.
raking half the depreciation as a standing charge, that is 15 over five years, which gives me £43 per annum or iroxirn.ately 17s. per week. Taking the other half of )reciation aS a running cost and assuming a life of 120,000 es I have 0.43d.
[he standing charges per week are:-tax, 12s.; wages, etc., 19s.; rent, 7s. 6d..; insurance, 11s, 6d.: interest. 6s.; depretion (half), I7s.; maintenance (d), 10s.; overheads LI 10s. tal, £10 13s. per week. As this is a haulage contractor, wants to know not just the bare cost, but what he should irge. It is therefore necessary to provide for profit, which ake at 15 per cent., which is II 7s.. bringing my total ekly charge to £12. which is nearly 5s 6d. per hour for 4-hr . week.
7or' the runniug costs, assuming petrol consumption to m.p.g., I have for petrol, 2.5d.; oil, 0.12d.: tyres, 1.2d.: intenance (e) 0.83d.: depreciation (half), 0.43d. The total 5.08d. Per mile. Add for 'profit at 15 per cent., 0.724. 1 1get a total of 5.1/d. per mile. These charges must refore be based on 5s. 6d, per hour plus 5.8d. per mile. the basiS of 6 m.p.h., his mileage charge must be 2s. lid., that his total rate should be not less than Rs. 5d. per hour is 6d. per mile for any mileage in excess of 6 m.p.h. Mese problems show how simoly and directly the figures time and mileage can be armlied, but they do not cover whole ground in so far as the exolanation of the method concerned. I was made aware of this necessity recently the course of a conversation with an operator who could be made to appreciate the value of this system of assessnt. Indeed, he appeared to regard it as an unnecessary• plication.
An Easier Way ?
[-le began his conversation with me by saying bluntly that could not understand that it was necessary to take figures tithe and mileage. According to his idea it was much toter to calculate rates according to the average weekly leage run by the vehicle, for example, if the machine be ing 400 miles per week. then the rate can be assessed on figures given in "The Commercial Motor" Tables of crating Costs. Admittedly, he said that he could not derstand the figures for time and mileage, anyway.
I had to go into the matter at length because, having in rid the work he was doing, I was perfectly well aware that methods of assessing rates would not serve. I began by ling him that the advantage of using figures for time and leage was that they could be applied to all kinds of work. lereas those giving rates per mile for the different milees per week were to be used only in certain circumstances. :h as those in which the vehicles concerned were on daily iployment over particular routes, doing more or less the ne journeys regularly. Under those conditions, the erator knows beforehand what his weekly mileage is going be and how much he must carp per mile. It is not tctical to apply these easy "rate-per-mile" figures when work done and the lead distances are rarely the Same two consecutive jobs.
in his case, he was hauling stone over lead distances of im 10-80 miles. The traffic was not all for one customer, hough it was all from the same quarry. I explained to n that it was essential that he should use the time and leage figures, otherwise he was going to make the customer io is farthest away from the quarry pay part of what he 3uld charge the customer who is near the quarry. To notify the problem for the reader I begin by taking the treme distances, will start by applying the operator's own method, that to say. I will take the figure for the rate per mile for a onner doing 400 miles per week. In the current issue of 3 Tables it is given as Is. 41d. per mile. The reader should ler to Table II under the heading "minimum charges per le' where he will find that figure.
In the case of the 10-mile lead for which, of course, the hide actually runs 20 miles. the charge would be Li 7s. ficl.,
which is 20 multiplied by Is. 4/d. That is 5s. 6d. per ton. For the 80-mile lead, the charge would be eight times this total, that is, £11 per load or £2 per .ton. At this stage the operator with 'whom 1 was discussing the matter interrupted to say :that he thought it was perfectly fair and reasonable to charge eight times as mach for an 80-mile Lead as he would for a 10-mile lead.
Now that is where the mistake really lies. What is being overlooked in applying this rate per .mile is that on a short haul a much bigger proportion of the cost is on account of what I call terminals, by which is meant time needed to
load and unloa4 and to turn round end of the journey.
• Before I can go any further with this problem, I must assume some figures-for loading, unloading atid other delays involved at either end of each lead, Usually 10 mins, is sufficient to cover the loading time because the, stone is shot into the lorries, but an hour is needed to -unload because this has to be done by hand. Furthermore, it is 'Often necessary for the lorry when loading to take its place in the queue, and sometimes as much as an hour or eVen more can be waited. As against that, of course, there are other times when the vehicle goes straight to the; chute, is loaded and is away again in a quarter of an -hour. I should add that time for presenting dcerunents and• so on is included in that .15 mins.
It would be fair to take an average figure of 11 hrs. to cover loading, unloading and waiting. The 'essential thing to bear in mind is that those terminal delays apply whether the vehicle is engaged on a-10-mile oran•80-mile lead,
In the first place, I will ignore some further practical aspects of the matter and keep' the description as simple as possible by assuming, which is not Correct, that the travelling speed is the same on both the short and long jhurneys. I will take that speed as 20 m.p.h. Therefore; the travelling time for the short lead is one hour and on the longer lead is 8 hrs., 'so that on the 10-mile lead the total time is 2/ hrs. and on the 80-mile lead 9/ hrs.
If I take the time and mileage figure from "The Commercial Motor". Tables of Operating Ccists for a 5-tonher, the rate per hour is Gs. and the rate per mile 9d. On the stir:trier of the two hauls the charge must therefore be for 21 hrs. at 6s„ which is 15s.. that is the tithe charge; for the mileage charge we have 20 miles at 9d., 15s., making"a total of £1 10s.
It may be as well to digress here for a moment to rectify an error which often crops up in these discussions with operators who are not familiar with the subject. The haulier usually applies the figure for time to his standing time only, that is the time spent at terminals, not realizing that he must also take into consideration the time spent in travelling. It should be emphasized that in applying time and mileage figures to any particular job, the time is the total from start to finish, that is terminals plus travelling time, and the mileage is the total distance out and home,
, Saving to Customer
Taking the 80-mile lead, the time is 91 hrs. at 6s.. which is £2 17s. The mileage is 160 at 9d. per mile, that is £6. The total is thus £8 17s., which is £1 15s. 5d. per ton as compared with £2 4s. by the previous method. So far, even taking the figures in their simplest form, there is a saving to the customer who is farthest away from the quarry and to whom the longest leads apply . .
However, these simplest figures are not correct. They do not take intia consideration certain practical factors which have a bearing on the subject. The most important of these is that the average.speed will not be 20 m.p.h. in both cases. It will be less over the short haul, but it is likely to . be much more over the long haul, Over a 10-mile lead, a big percentage of the journey is likely to be through congested areas. The average experience is that the speed is likely to be not 20 m.p.h., but from 12-15 m.p.h. In fact, the round journey is likely to take more than 3 hrs.
Taking 3 hrs. as the average time, that brings up the time cost from 15s. to 18s, and with the charge for mileage as before. 15s., the total is £1 13s.. which is equivalent to 6s, 7d. per ton.
On the other hand, the average speed for the 80-mile lead is just as likely to be 30 m.p.h. It will certa:nly be much nearer that than 20 m.p.h. and the total time per round journey can be taken as 71 hrs. In this case, the eharge for time becomes £2 5s. Instead of £2 us., and the total is now £8 5s. at El Els. per ton.