Total running costs

Summarising the running costs outlined in this chapter will enable the total running costs to be established as in the following example:

Using this basic data costs can be developed as follows:

Total operating cost on a time basis

Per Annum:

Standing cost + Overhead cost + (Running cost per kilometre x mileage covered)
K831,800.00 + K79,992.00 + (K20.44 x 64,000.00 kilometres = K1,308,160.00) = K2,219,952.00 per annum
Per Week:

Total operating cost
Number of working weeks
K2219952.00/48 = K46,249.00 per week

Per Day:
(Total operating; cost)/ ((Number of working weeks x 5 days)

(K 2,219,952.00)/(48 x 5)
= K9,249.80 per day

Per Hour:

(Total operating cost per day)/(Basic working day)
(K9,249.80)/(8 hours)
= K1,156.22 per hour
or
(Total operating cost per day)/(10 hour working day
(9,249.8)/(10 hours)
= K9.25 per hour

Total operating cost per kilometre Having established total operating costs for a series of units of time the next step is to determine a total operating cost per kilometre. Thus:
(Total operating cost per year)/(Mileage covered in the year)
(K2,219,952)/(64,000 km) = K34.89 per kilometre

Total operating cost per tonne The operator may, however, prefer to know the cost per tonne rather than the time or distance costs just calculated. In order to do this he must first have some idea of the tonnage moved in a given period.
For example, if one 12-ton load is carried ~ach day for a 5-day week:
(K36,028.00 per week)/(12 tonnes x 5 days) = K600.00 per tonne

Using total operating costs Having arrived at these figures the operator is now in a position to assess how each vehicle in his fleet, and the fleet as a whole, has performed in terms of the relationship between costs and revenue. This is an important factor especially in hire and reward haulage operations.
Increasing revenue trends are not sufficient evidence that all is well profit-wise because extra revenue is of no value unless it is enough to cover the extra costs incurred in earning that revenue and also provide a margin of profit.
While revenue may have risen due to more efficient working and increased rates, costs may have risen at a faster rate so that the net effect is one of reduced, not improved, profit performance.

Without detailed costing the operator would be totally unaware of such a situation until much later when the annual accounts are produced.
Costing in its role as a management tool can now be clearly seen. It is at this point, with total operating costs for a variety of unit measurements (time, distance or payload) in front of him, that the operator has the necessary basic information to enable him to make certain management decisions.

Decisions can be made as to whether the work carried out for particular customers is providing sufficient revenue to cover the costs of carrying out that work; whether particular individual loads or traffic flows are earning sufficient revenue at the rates quoted; indeed whether the rates schedule itself is set at a level which will not only enable costs to be covered but also a profit to be earned.
Using the information acquired decisions can also be made regarding the performance of the vehicle:

1. Is its fuel consumption what it should be, or what the manufacturer claims for it?
2. Is the amount of money spent on spare parts excessive?
3. Has it spent an exceptional amount of time off the road?
4. Are labour costs unnecessarily high because the vehicle is complicated and difficult to work on?
5. Has tyre wear been as expected or greater?
   

Similarly, questions can be asked and answered in respect of the standing charges and overhead costs:

1. Is the depreciation allowance proving to be correct or are maintenance costs soaring to a point where the vehicle will have to be replaced at the end of, say, the fourth year rather than at the end of the fifth year?
2. Is the vehicle insurance premium at a reasonable level or is this being inflated by a poor accident record?
3. Are individual aspects of overhead costs rising at an exceptional rate?
4. Can areas be identified in the overheads where worth- while savings can be achieved.

There are many such questions that the operator can, and should, ask himself or his staff, the answers to which can be taken directly from a set of comprehensive cost figures.
The operator will find it possible to make many short and long term operating decisions and with greater confidence when he has specific figures in front of him. Perhaps the most important will be whether the vehicle he purchased to carry out the work on which he is normally engaged is one which can be operated at reasonable cost in relation to the revenue potential of that work or whether the vehicle is of a class that is far too expensive for such work.

Such information will prove extremely useful when the operator has to make replacement decisions.