Solving the Problems of the Carrier
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THE method of cost keeping which I have outlined in the previous arficles is not one which is likely, At first sight, to commend itself to the orthodox accountant, especially if he has not made a study of the peculiar needs of the carrier. He may not reach the point of criticizing, but he will fail, perhaps, to understand the need for segregation of the vehicles in respect of their operating costs. Ordinary accounts are not designed to give that information, being concerned merely with expenditure as a whole.
Differences in Accountancy Methods.
For orthodox accountancy purposes it is sufficient, for example, if the expenditure on petrol or oil fuel and lubricants be given in total, if actual outlay on tyres during the period under discussion be stated and if the operator contents himself with noting what he has actually spent on maintenance and repairs, without regard to whether that be small or great in proportion to the period and the mileage.
Moreover, it is not customary, in these orthodox accounts, to budget, but merely to record. That is to say, it is unusual to make provision, as is absolutely necessary in a haulage business, for expenses which may not be incurred for a year or more. I am referring to the way in which, in these accounts, I provide for future expenditure on tyres and maintenance by allocating an average amount each week to those items.
' To the accountant, each year is complete in itself. He desires to know what has been
.spent and what has been earned. He makes adequate provision, as a rule, for depreciation (an item which he , will necessarily include), but not for some .future disbursements on account of overhauls and repairs.
Curiously enough, I have at this B•le
• moment before me some figures of cost in connection with a small haulage undertaking. I am asked to check these figures as part of the process of valuing the business itself. As a guide, I am not given even the figures for a year's working, but only those of the last quarter. On going through them I find that only actual expenditure is set down and, as it so happens, nothing has been
spent either on tyres or on maintenance. The profits which the business is presumed to show are thus, according to my methods, artificial and considerably
in excess of those which the business is actually. yielding. Yet, to the accountant, the figures given to me• are perfectly reasonable ; they show the expenditure and revenue and, therefore, the net profit for the period under discussion.
Every Expenditure Must be Recorded.
One feature, at least, is common to both systems.
Both the orthodox method of accounting and my own insist that every halfpenny. that is spent must be recorded. In my system, I have to keep in mind not only the necessity of such accounts as will enable the state of the business, at the moment, to be calculated, but to arrange matters so that its actual potentialities for profit shall appear. In addition, the individual cost of each vehicle is shown, so that each can be checked against others and against itself, One secret of success in any business is always to have a grip on matters of finance. There is no need to be unduly disturbed because occasionally the takings
fall below the expenses, so long as the reasons for the deficiency are known and it is appreciated, that they are only accidental or occasional. On the other hand,
if the loss be seen to be due to a cut rate, if it appears that the conditions
harges Running Cost which have brought about the loss ay. per mile, be likely to continue, then steps can and should be taken immediately to put matters right. The advantage of this daily check is that no error is allowed to continue.
5.20 5.60 5.10 7.70 7.23
In this matter I am, to some extent, following the same principle as that already laid down in respect of vehicle operating costs. I insist that these be taken out daily and concerning individual machines, so that any discrepancy, any excessive expenditure, is immediately noted and can be checked and corrected before serious results accrue.
A Daily Check Easily Made.
How is this daily check to be effected'? Quite easily, for the information is available in the accounts as I have set them out. First, as to cost, for each vehicle there is a statement of cost of operation. If the reader will refer back to the earlier articles, he will find that the information is readily accessible and can be used with out difficulty for the end in view. The article in our issue dated January 25 should be referred to at this point.
In connection with the vehicle there cited as an exAmple, it is seen that fixed charges of £6 8s. 10d. per week are supplemented by £6 17s. 6d. for wages and insurance, making a total of £13 fls. 4d., or about 10s. per day for a 54-day week. In addition, the running costs are shown to be 6.53d. per mile for tyres, maintenance and depreciation, whilst the fuel and oil cost (see Table 2) works out at approximately 0.70d. per mile. This vehicle is, therefore, costing 7.23d. per mile for running costs.
The owner can keep by him a set of figures, such as the above, for each vehicle of his fleet. If I assume for example, that he has five vehicles, three 8-tonners and two 13-tonners, then the figures might be as in Table 1, which is given at ,the foot of the preceding page. This summary should be available to hint each week. A responsible clerk should take them out anew, every Monday morning, from the weekly costs, making a note of any unexpected increase or decrease that he observes.
For the purpose immediately in view, it is not necessary to account for differences of fractions of a penny in the running costs per mile. They are useful for purposes of comparison between vehicle and vehicle, but they are of no great consequence in keeping a daily check on profits. It will be sufficient if the approximate figures of 54d. and 71d. per mile be assumed to apply in the cases of the 8-tonners and 13-tonners respectively.
Additionally, a figure for establishment costs is required. These were shown in an example taken in the course of the articles to total £1,500 per annum, or S:30 per week. This sum must be divided amongst the fleet, each vehicle bearing its proportion according to the load capacity. The method of allotting establishment charges is as follows : Allocating Costs to Various Vehicles.
The total capacity of the fleet is 50 tons. The establishment cost is, therefore, equivalent to 12s. per ton of capacity and that is equivalent to about £5 per week for each 8-tonner and £7 10s. per week for each 13tonner, say, £1 per day for the former and 30s. per day for the latter.
If these daily amounts be added to the fixed charges corresponding to the two different types of vehicle, then, so long as the costs remain unchanged, the amounts of £3 per day and 51d. per mile and 24 per day and 71d. per mile, can be assumed to apply to the 8-tonner and 13-tonner respectively.