SUGGESTING A STANDAR ED SYSTEM OF COSTING
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Solving the Problems of the Carrier
Our Costs Expert Makes a Number of Pertinent • Observations on Costing as a Preliminary to Dealing with the Particular Problem of Costing Maintenance as
Propounded by a Reader
IN my opinion, it is most essential that, so soon as possible, !some standardized system of recording costs of operation and costs of transport should be adopted by operators of • goods vehicles, ancillary users as well as hauliers. Only in this way can the many differences of opinion as to total operating costs be eliminated.
At present, the differences in the practice of accountancy are such that, whilst some operators include specific items in their schedule of operating costs, others omit them. Comparison is thus impossible without extensive investigation into all the relative data and it is not always feasible when that is done.
The result is that each of these classes of operator, basing his charges on his costs, arrives at certain rates and charges and that, more than anything, accounts for the wide differences of opinion as to what those rates and charges should be.
Furthermore, that is not the only difficulty. Another is the wide diversity in size and in character of hauliers' businesses. Each of these is a factor of importance in relation to the subject of accounts keeping, and the divergences make it still more difficult to arrive at .a standardized method,
As regards the size o'f hauliers' businesses there is, at one end of the scale, the owner-driver, running one vehicle and probably not thinking it worth while to keep any detailed accounts at all. ' At the other end is the large operator, running hundreds, possibly thousands, of, vehicles in connection with the operation of which a vast and complicated scheme of accounts is often thought to be necessary.
• Diversity in Character of Businesses • In the character of the business again, the differences between one and another are as great. On the one hand there is, for example, an operator who is solely concerned with the carriage of sand and ballast and such materials, whose needs, in the way of detail, in his costs system are limited. On the other hand there is the large operator, running, say, a parcel-carrying business with a collection and delivery area extending over half the country.
It seems almost impossible to reconcile these widely divergent needs. What should, and can, be done, however, is to lay down certain fundamental principles and establish a system on those principles. Requirements of such a system are that it shall be flexible enough to be capable of being expanded or contracted so as to meet the diverse needs of these various types of operator. But it should be sufficiently rigid to ensure that there could be no relaxation of the application of the fundamental principles.
I have, for a long time, had the intention of dealing with this subject, but have been deterred, not by the magnitude of the task, but by glie fear that, for its comprehensive execution, it would occupy such a large number of articles. In that way, the practice, in " Solving the Problems of the Carrier," of dealing with operators' problems as and when they arise, would have suffered, and that cannot be allowed to happen.
I have come to the conclusion, however, that the need ior this standardization is so great that something really must be done about it. What I propose is to begin tlie series of articles on this standardization of accounts and carry it on until completed, but arrange it in such a way
that it will be possible to interrupt the series, from ‘time to time, to deal with other matters as and when the need arises.
Hem, at the very outset, is the first interruption. A current, and urgent problem, brought to me by a reader, on this subject of costing, must be dealt with at once. It does not ask for the whole series of articles, but for one which, in the ordinary way, would not come up for consideration until quite a number of articles had appeared. I am, therefore, going to take it out of order.
The problem, one concerning the recording of maintenance costs, is interesting in the light of what I have already written, because, in attempting its solution in a broad way, difficulties of divergencies in size and character of hauliers' businesses are at once encountered.
• How Provision is Made for Maintenance • Some operators make provision for all maintenance work to be carried out within their own establishments. On the other hand some provide for all that work to be done by local garage and repair depots. Again, some divide the work, doing some of it on their own premises and putting some of it out.
Here, the size of the untertaking has no hearing on the choice of method. Some quite small operators do all their own maintenance and repair work, whilst operators of the largest fleets in the country have come to the conclusion that their maintenance is best carried out under contract by local garage proprietors.
It is possible, perhaps, to leave out of our scheme any precise provision for the owner-driver who turns to on Sunday and effects his maintenance work and repairs on that day. It is essential, however, to provide in the scheme of costing for the two kinds of method just described and for others intermediate to them.
The inquiry which has started this train of thought comes from an operator who has 11 vehicles. He employs one fitter and has a carpenter available when any jobs requiring his help have to be done. This inquirer has, for some time, kept strict records of mileage, fuel and oil consumption, and so on, but now wishes to expand his method of costs recording in such a way that any repair or maintenance operation can be properly debited to the individual vehicle.
He suggests that he would like the procedure to be such that records of material used and time worked can be entered in duplicate on some kind of sheet which has a price column. The idea is that one copy, without price, may be retained by the mechanic for his own records, whilst the other can pass into the office, have the price column filled in, and serve as a means for ascertaining the maintenance costs of the vehicle.
Some such procedure is an essential part of any efficient system of recording the costs of operation. Maintenance figures must be complete and must be allocated to individual individual vehicles. Where there is a separate deprtment for maintenance and repairs, as in this case, it is necessary to treat that department as an entity, and to deal with it as though it was a separate establishment. In effect, it must be regarded as, a repair shop owned by the haulier, but separately controlled, the costs being set out, so that the repair department charges each vehicle for the work done on it. Before getting down to actual details, there are one or two points to discuss. They are not, strictly speaking, controversial, but have been raised by hauliers when talking about some of the finer points of costs recording.
The first, put to me in the form of a suggestion, was that when a vehicle is idle, because it is in dock for repairs or overhaul, the standing charges for that idle time should be charged against the vehicle and included in the item " maintenance."
I think not. The idea is quite an interesting one; it is one way of providing for the entry of what is undoubtedly a debit against the vehicle, but it is not the right way. It is important not to lose sight of the fact that what is necessary, in these accounts, is to know what are the actual costs of operating the vehicle and that a particularly important item of those costs is the direct expenditure on maintenance and repairs.
• How to Allow for Idle Time •
The cost, to the operator, of having a vehicle standing " idle, while it is off the road being repaired or otherwise dealt with, is no part of that cost of ma,intenance. In any•• case, the loss to the owner is already provided for in a more rational way, as follows:— The efficiency of operation of any vehicle is measured by the operating costs per unit of work done, whether that work be meaSured in miles, hours operated, tons carried, Or ton miles. In the case of a vehicle which spends a considerable proportion of its time in dock, its efficiency, or lack of it, is disclosed by the fact that its cost per unit (any one of those enumerated above) is high. That is the information really .required and it would be no help, but only an unnecessary complication, to load the maintenance costs with allowance for that idle-time, ,
The reason for the lack of efficiency of this vehicle will quickly be discovered in the fact that its maintenance costs are high. Moreover, if we were to complicate the accounts for maintenance by trying to include this figure for idle time, the results would be useless for any purposes of comparison, because of the wide variation in the value of the idle time of vehicles.
The other question deals with something which mignt almost be said to be included in the above. It concerns those frequent cases in which the driver helps in the repair shop, while his own vehicle is undergoing some maintenance operation. The question is: Should his wages be debited to maintenance, or should they remain as " driver's wages " in the schedule of operating costs?
Here the issue is not quite so clear. On the face of it, as the driver's wages are part of the vehicle standing charges, the question would thus appear to have been answered already, since it has been agreed that these standing charges must not be debited against maintenance. , The problem is not so easy of solution as that. For.one thing, a driver's wages are not, strictly speaking, a standing charge. It would be quite feasible, in the case of an operator commanding a large fleet and probably keeping spare vehicles, to turn the driver or a vehicle which is in dock, on to another vehicle, in which case this question would not arise.
Moreover, if that he done, another man mutt be employed to help with the repair and his wages will positively be charged to the job. If, therefore, the driver's wages—when he helps—be not charged, a difference will"' arise as between the cost of maintenance (a) when -the driver does not help, and (b) when he does.
In view of that, and the fact that it would be better, if possible, for maintenance costs as between one concernand another to be fairly comparable, then it would seem that the correct thing to do is to debit the driver's wages against maintenance and deduct -them from the: corresponding column " wages " in the operating-costs schedule of the vehicle.
• Theory Subordinated to Practical Considerations • .
. This is, however, a case where practical considerations must take precedence over theoretical. Theory dictates that the driver's wages should be debited against maintenance and deducted from the wages item in the vehicle operating costs. Actually, that would involve a complication of entry,. the advantage of which would not justify the trouble.
I decide, therefore, that no such entry is needed and I am influenced by the fact that even if it were recommended there are few operators who would accept the ruling, or go to the trouble involved, An analogous case arises in connection with charging for washing and polishing and greasing—all of which are maintenance operations—when the driver does the work. Here,again, the question arises: Should the driver's time and wages for that time be debited against maintenance and deducted from the column " wages-" in the vehicle operating costs?
The answer is " No " and the reason is the same as that just given.
This illogicality in the system of scheduling costs does, indeed, affect the figure for maintenance, distorting it so that it seems to be less than it really is. On the other hand, the complication of the accounts would be considerable and the result, in so far as total costs of operation are concerned, would be nil. S.T.R.