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Off the Beaten Track

4th May 1962, Page 95
4th May 1962
Page 95
Page 96
Page 95, 4th May 1962 — Off the Beaten Track
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Which of the following most accurately describes the problem?

Whilst the prime, purpose of compiling standard tables of operating costs to provide guidance to users of vehicles under normal conditions, estimates of expenditure in abnormal circumstances are often required.

THE costing of commercial vehicle operation can be undertaken for several purposes. In recording details of current running, basic information is made available then on which charges could be formulated for quotation in the near future. Concurrently, the same records would be essential for control of the daily running of the transport department or business.

An advantage of the comparatively small haulage business is that the proprietor or manager has direct personal control over all departments. These would include the provision, operation and maintenance of vehicles, engagement and detailing of staff, together with the canvassing for and control of traffic. Under such circumstances it is understandable that the entity of such a business might tend to belie the several purposes to which the recording and costing of commercial vehicle operation can be put.

In larger transport organizations these various functions are often completely segregated and the respective authority delegated accordingly. In such circumstances, in addition 'to ensuring that the extent of the precise duties delegated are known to all parties, it is necessary still to retain an appreciation of the inter-relationship of the several departments, particularly regarding the effects any changes might have on operating costs.

In any efficient organization it is obviously essential that the management should be capable of making accurate assessments of the cost of future operations and developments. This, in turn, implies the ability to keep accurate records and control current costs.

It is unfortunate that the road transport industry is particularly prone to underrate or ignore the value of adequate costing of vehicle operation. As a result, uneconomic rates are quoted by operators unaware of the full extent of their ultimate commitments.

In this context the recent entrant to the road transport industry is handicapped by the fact that he will obviously have no records of his own on which to base quotations. On such occasions " The Commercial Motor Tables of Operating Costs" can prove invaluable in providing standard operating costs until such time as the individual operator has acquired adequate information relative to his own particular type of work.

Although the established operator is in a more favourable position in this respect, the very existence of adequate records and costs could engender a tendency to underrate the significance of the continuing changes in operating conditions and resulting costs.

IT will thus be seen that commercial vehicle costing is concerned with past, present and future operation. Relative to future operation, and because of the continuing changes in prices and wages under current conditions, a budget of future costs should be limited to possibly three or six months. Such a budget would endeavour to calculate immediate future costs, and the total would be segregated as between the several departments concerned By providing such a financial target overall efficiency should be encouraged, whilst quotations to customers could be submitted in the knowledge that they would be more likely to be representative of the actual expenditure incurred on the work, if this was subsequently performed, than if based on the apparently equivalent cost of similar traffic already moved.

If the preparation of such a budget is to serve a positive

purpose—namely, to control expenditure as and when it occurs—as distinct from merely providing a standard by which, at the end of the allotted period, it is possible to determine whether or not the target has been achieved, then it is essential that adequate records are available immediately the relative work is completed. It cannot be over-emphasized that the majority of transport records are of little more than academic interest if they cannot be compiled and, presented in sufficient time for useful action to be taken. Where a choice has to be made it would be better to institute a system of relatively simple recording which could, nevertheless, be compiled quickly, rather than adopting a more comprehensive method which is seldom completed in time to be of real use.

WHEN the work undertaken by a transport department or business tends .to follow a regular pattern, both in respect of the traffic carried, journeys made and vehicles used, then obviously the task of preparing budgets is substantially facilitated. This is because the existing records of operation immediately prior to the period under review will provide a sound basis for such an assessment.

With the expansion of such a department or business. occasions will no doubt arise when requests are made for types of work not previously performed to be undertaken with some indication of the likely cost. Whilst in such instances it would not be possible to achieve the same accuracy as with similar budgeting for normal operation, only in the most exceptional circumstances would it be possible to consider undertaking special work with no knowledge whatever as to its ultimate cost.

Because of the special circumstances which would apply to abnormal operation, one or more of the ten items of operating costs is likely to be affected, and usually adversely. Standard tables of costs must inevitably relate to normal operation and, for an estimation of abnormal operation to be of an acceptable standard of accuracy, it must be specific to a given set of circumstances. Nevertheless, some indication of the possible variation in overall operating costs can be given by arbitrarily assuming substantial increases in several of the individual items of cost.

In order to quantify such variations it would first be necessary to estimate the operating costs, of the chosen vehicle when working under normal conditions. Whilst several types of vehicle might be considered suitable for particular types of abnormal work, including the fitting of specialized bodies, for more robust work a vehicle in the heavy" range would often be selected.' Therefore, for this comparison, the basic vehicle chosen will be an 8-ton oil-engined goods vehicle with platform body costing £2,675 complete. With an unladen weight of 4 tons 7 cwt. the annual licence duty would be £72. With the appropriate addition for the cost of a carrier's licence fee. this would be equivalent to LI 9s. 8d. per week, based on a 50-week year to allow for two weeks per annum for major overhaul or driver's holidays.

In the first example of estimated operating costs for this 8-tonner, it will be assumed that the driver works a basic 42-hour week and is paid the rate appropriate to the Grade I area as defined in the Road Haulage Wages Regulations (R.H.72). With additions to allow for insurance contributions and holidays with pay. the total cost of driver's wages to the employer would then be the equivalent of 110 8s. 11d. Rent and rates in respect of garaging the vehicle will nominally be assessed at the equivalent of I3s. 6d. per week. An annual premium for comprehensive insurance cover of A-licence operation based in the medium-risk area is reckoned to cost £151, the equivalent of £3 Os. 5d. per week. Interest charged at a nominal rate of 5 per cent. on the initial outlay of £2,675 would add the equivalent of £2 I3s. 7d. per week.

The total for these five items of standing costs is thus £18 6s. Id. per week. . For this type of vehicle an average weekly mileage of 800 would be a conservative estimate and on this basis the standing cost per mile would be 5.49d.

Dealing similarly with the five items of running costs, it will be assumed that fuel oil is purchased in bulk at 4s. 11d. per gallon. With an average rate of consumption of 13 m.p.g. the fuel cost per mile thus becomes 3.83d. The cost of lubricants, inclusive of the recent increase of approximately 10 per cent., is reckoned to be 0.29d. per mile. With a cost per set of £212 and an estimated mileage life of 30,000, tyre costs per mile would be 1.70d. Maintenance is reckoned to cost 2.40d.

To arrive at the balance to be written off in calculating depreciation it is first necessary to deduct the equivalent cost of the original set of tyres from the price of the vehicle, with a further deduction equivalent to the estimated residual value. Assuming a vehicle mileage life of 300,000, the depreciation cost per mile would then be 1.76d.

Running costs therefore total 9.88d. per mile, or £32 I8s. 8d. per week when 800 miles are averaged. Correspondingly, by the addition of standing and running costs. the total cost of operating this 8-tonner under normal conditions, and with the driver being paid for a basic 42-hour week, would be 15.37d. per mile, or £51 4s. 9d. per week. It should be emphasized that the whole of the operating costs given in these examples are limited to the actual operation of individual vehicles and do not include any proportional allowance for overhead costs or profit margin.

THE effect of increasing the amount of these various items of cost will now be ascertained on the assumption that such increases are incurred under exceptional operational conditions. Although obviously such variations could be virtually infinite, the standard notional increase for the purpose of this exercise is assumed to be 100 per cent.

A major item in the cost of operating a commercial vehicle is driver's wages. Despite the nationally agreed basic minimum wage for drivers of this size of vehicle in Grade I areas of £9 I Is., there will be comparatively few occasions, particularly with this type of vehicle, when in fact the driver's hours are limited to 42. Even assuming that any additional work was done within a normal working week, so that overtime was limited to a rate of time and a half, actual wages without allowances for insurance contributions and holidays with pay could rise to nearly double this basic amount. Thus. in this category, the rate for a 55-hour week would be £13 12s. lid., and for a 66-hour week £17 7s. 11d. Additionally, should work be undertaken on a Sunday or statutory holiday, an extra amount up to £5 Os. Id. could be earned.

In this instance it will be assumed that the original amount allowed for wages, namely £10 8s. lid., will be doubled, with a resulting new standing cost per week of £28 I5s. With the total running cost remaining the same at £32 I8s. 8d., the new operating cost becomes £61 I3s. 8d. per week, or 18.50d. per mile. With the basic operating cost of £51 4s. 9d. being reckoned as 100 per cent., the doubling of the item of wages alone raises this figure to 120.36 per cent.

ANOTHER set of conditions may arise if a vehicle considerably more expensive than usual was operated, although the work undertaken was comparatively normal. In such circumstances the two items of cost to be directly affected would be interest on capital outlay and depreciation. Again assuming that the original costs of these two items were doubled, interest charges would then amount to £5 7s. 2d. per week, so giving a total standing cost per week of £20 19s. 8d. Similarly, the depreciation cost per mile would be increased to 3.52d., making a total running cost of 11.64d. per mile, or £38 16s. per week. The total operating cost would then be £59 15s. 8d. per week, or 17.92d. per mile, as compared with the basic 15.37d. Consequently, the cost of operating the more expensive vehicle, assuming that there were no increases or adjustments to any of the Other items of cost, would be equivalent to 116.68 per cent. compared with the standard vehicle.

A major item in the cost of operating any commercial vehicle must always be fuel, and in the costs of operating this 8-tonner it was assessed at 3.83d. per mile. It will now be assumed that, because of a higher initial price and adverse operating conditions, this item of cost is doubled, so becoming 7.66d. per mile.

The total running cost would then be I3.77d. per mile, or £45 18s. per week, still assuming an average of 800 miles per week. The total operating cost would be £64 4s. Id. per week, or 19.26d. per mile. This would be the equivalent of 125.31 per cent., as compared with the basic operating cost per mile of 15.37d., being reckoned as 100 per cent.

It will thus be seen that increases of between 16 to 25 per cent, over the basic cost would be incurred by the doubling of the expenditure on any one of the three major items of operating costs, namely wages, fuel and vehicle cost and depreciation. Although, in practice, any additional cost arising from exceptional operating conditions might be substantially less than the proportion chosen for this example, it would be unlikely that such special circumstances would affect one item only. The accumulative effect of smaller increases on several items could well be greater than the amount of increases instanced in this example. S.B.

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