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Vehicle costing
Introduction
This chapter begins with a discussion of the reason why road vehicle costs need to be assessed separately from the costs found in most companies financial accounts. The fundamental elements of road freight transport costing are reviewed showing how these costs should be considered and what can be gained from this type of information, The need to know the details of vehicle and fleet performance is emphasized as is the importance of gaining this information in good time.
The two main uses of these types of costing systems are identified as the monitoring and control of operations and the formulation of budgets. The major costs are categorized as standing costs running costs and overhead costs nd examples show how these costs are calculated.
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The concept of whole life costing is explained. Some simple comparisons of different vehicle costs demonstrate the relative importance of the different types of transport cost and show this cost relationship can vary according to the size of vehicle.
Reasons for road freight transport
Vehicle costing
At the end of every company’s financial year the company has to produce a financial statement that shows how well or how badly it has performed during that year. This is known as a profit and loss statement. This statement is useful in a broad context because it can show whether or not the company has performed satisfactorily.
It may also be possible from this information to ascertain a good picture of the overall performance of the company’s transport operation for that year but it does not provide a detailed account of exactly where any profit or loss is made within the operation itself. In short it fails to give sufficient details of each vehicle and its operation to enable goods control of the transport fleet.
There is another problem. The final profit and loss statement is produced after the financial year has ended. Because of this it is too late for management to make any effective changes to the transport operation if the results show that its performance is not acceptable.
The statement therefore fails to provide its information in sufficient time for any useful changes to be made.
In summary there are two main reasons why a special from of cost reporting is beneficial to a manager running a transport operation. These are: 1 the need to know the details of the vehicle and fleet performance in order to control the operations; and 2 the need to know in sufficient time to make any necessary changes.
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