the costing column
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Check your overheads
• The operator of a fleet of commercial vehicles incurs several items of expense commonly known as overheads or establishment costs. Unlike the 10 items of operating costs they follow no set pattern. Often they vary more in relation to the type of traffic carried than the vehicles operated.
Nevertheless they are expenses which have to be met. Despite—or because of—their variableness the prudent operator will take special steps to ensure that all overhead costs are properly recorded. Then he will further ensure that a fair proportion of overhead costs are allocated to each operation.
To avoid some items of overheads being overlooked it is useful for an operator to draw up a check list of items of overhead costs which at some time he may incur. If such a list is sectionalized it appears less of a miscellaneous collection of items and therefore easier to check.
The fact that no expense is incurred in respect of some of the items during any particular accountancy period or for a particular type of operation does not invalidate the exercise overall.
Nine sections could provide a useful basis for a check list of 50 items or more of overhead costs. It is recognized, however, that specialist operators providing, for example, nationwide parcels services or Continental coach tours would need to make amendments to meet their particular needs.
The nine suggested sections could be headed: management, office, garage and stores, warehouse, branch depots. sales, professional services, auxiliary fleet and a miscellaneous items. A total of 50 items or more could be included in the combined nine sections.
Management is widely recognized as an essential function of large, modern and successful enterprises. In contrast there is a commonly held belief that no management is involved in running a small fleet.
Such an attitude is mistaken. Admittedly, the amount of time spent by an owner-driver in managerial duties may be relatively small. But that is no reason why he should go unrewarded when taking on this responsibility.
Accordingly, when an owner-driver performs several duties, some of his salary should be allocated to management. This, in effect, would constitute the first item of the first section of overhead costs, namely "Management—salaries". A second item in this section would be ''car expenses" as presumably this would be essential in carrying out supervisory duties and maintaining contact with customers.