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the costing column
Page 64
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Calling a spade a spade
• Time and mileage are two basic factors in transport operation. In costing their counterparts are standing costs and running costs which together comprise the total operation cost of a vehicle.
Division of total operating costs into these two groups is common practice. However, the working out of its practical application can give rise to misunderstandings. To avoid this, the definition of the terms used in the costing of vehicle operation should first be agreed.
Standing costs arise whether a vehicle is in use or not and are reckoned on a time basis—per hour, per day, etc. Following the procedure adopted in compiling the Commercial Motor Tables of Operating Costs, standing costs are made up of five items: licences, wages, rent and rates, insurance and interest.
Licence costs arise from the duty payable under the Vehicles (Excise) Act (the Road Fund Tax ceased in 1955). According to whether it concerns a goods or passenger transport vehicle the amount of duty payable will be dependent on the unladen weight or seating capacity.
Wages may seem self-evident as an item of expenditure but for cost purposes this item includes the total direct expenditure incurred by an operator in employing a driver.
Rent and rates are expenses incurred in garaging a vehicle at its home base.
Insurance, as an item of standing costs, refers only to premiums paid to insure the vehicle.
Interest is calculated on the initial outlay of each vehicle. A rate of 10 per cent is charged in the current edition of the CM Tables.
Whatever the actual interval of payment of these five items of standing costs, e.g. wages weekly and excise licence yearly, it is necessary to apportion them to a common period, say weekly, and then total the items. From this amount a total standing cost per hour, per year, etc., can then be readily obtained.
Running costs arise only when the vehicle is operated and vary directly to mileage run provided similar operating conditions continue to apply. Accordingly these costs are calculated in pence per mile and to two decimal places in the CM Tables.
Fuel is a major item of running costs and correspondingly provides a major opportunity for economy. The fuel cost per mile is obtained by dividing the cost per gallon of fuel by the miles per gallon achieved.
Lubricants are costed on a similar basis and the resulting cost per mile accounts for engine oil consumption and sump replenishment.
Tyre cost per mile is obtained by dividing the cost of a set of tyres (excluding the spare) normally fitted to the vehicle by the estimated mileage life.
Maintenance costs include washing, servicing, repairs and preparation for statutory testing.
Depreciation, when compiling the CM Tables, is calculated on a mileage basis, the actual mileage varying with the type of vehicle.
The addition of these five items provides the total running cost per mile. A further addition of total standing costs and running costs then gives the total operating cost.