Total Cost End of Course Project Three Running a trucking company without knowing your costs is like driving with your eyes closed. If you do not know the cost of each mile your trucks drive, you cannot know the best per-mile rate to charge your shippers. This makes it difficult to post a profit. Carriers that do not track and control their operating expenses may soon go out of business. Nationally, 310 carriers with five or more trucks were forced to shut down in 2015. Trucking is a tough market and poor bookkeeping hurts a company’s chances of survival. To ensure accuracy in calculating your costs per mile, you must account for your company’s expenses. These expenses fall under three categories: fixed costs, variable costs, and salaries. Omit just one cost of doing business from your calculations and you will not have a complete picture of your company’s bottom line. If you use accounting software this can help report all of your costs for less than $20 per month. If you have specific questions about calculating cost per mile, it is also a good idea to consult a certified public accountant. The following sections use fictional charts to illustrate each cost category. These charts serve as examples that may not reflect all of your company’s expenses. The final section brings all the costs together to calculate a company’s total cost per mile. This project requires you to learn how to calculate Prices-Per Mile. Using the information below recreate the charts and fill in the blank. After getting all the answers to the missing Per-Mil Cost answer the following question: Based on the information (charts) provided what can you determine about Ivy Trucks Inc. in terms of profit and loss? Are there any improvements that could be accomplished to make the outcome better? Fixed Costs Fixed costs are expenses that your company incurs whether your trucks are hauling a load or are in the parking lot. Fixed costs include expenses like insurance, property leases, permits, and other services. In the chart below, the fictional company Ivy Trucks Inc. calculates fixed costs by the mile for the month of August. The chart divides each fixed cost by the 10,000 miles that Ivy Trucks drove that month: Ivy’s Trucks Fixed Costs for August Monthly Cost Per-Mile Cost Truck Payment $1,200 ? Collision/Comp Insurance $600 ? Office Lease $1,000 ? Health Insurance $420 ? Permits $350 ? Total Fixed Costs $3,570 ? Using the fixed cost divide each fixed cost by the 10,000 miles to figure the Per-Mile Cost for each category.Variable Costs Variable costs are the money that your company spends in operating its trucks. These costs include fuel, maintenance, repairs, meals, lodging, and other expenses incurred on the road. Variable costs can range greatly from one time period to the next. As you put more mileage on your trucks, you will see the variable costs increase. You should calculate these costs monthly to get the most up-to-date information on how much your company is spending. Here is how Ivy’s Trucks calculated variable costs. Again, the costs are divided by the 10,000 miles the company drove in August. Ivy’s Trucks Variable Costs for August Monthly Cost Per-Mile Cost Fuel $1,700 ? Tires $300 ? Regular Maintenance $450 ? Repairs $560 ? Lodging/Meals $380 ? Taxes $275 ? Total Variable Costs $3,665 ? Using the variable cost divide each variable cost by 10,000 miles to figure the Per-Mile Cost for each category.Salary The amount you pay your drivers is likely your single biggest expense. It needs to be part of your calculation of cost-per-mile. Here is what it looked like for Ivy’s Trucks in August: Monthly Cost Per-Mile Cost Drivers’ Salaries $3,750 $0.375 Total Cost per Mile To determine the total monthly cost per mile, simply add the fixed, variable, and salary costs. Calculate the total cost per mile for Ivy’s Trucks in the month of August: Cost Per Mile Fixed Costs ? Variable Costs ? Driver Salaries ? Total Cost ? Knowing your trucking company’s cost per mile benefits you in many ways. It helps identify spending patterns and areas where you can cut back if needed. Cost per mile also allows you to determine an appropriate per-mile rate to charge shippers. Knowing your company’s operating expenses on a per-mile basis gives you the information needed to be profitable. If your cost per mile seems high, one solution is to take on more work. Not only will this increase revenue, but your cost per mile should decrease. While your variable costs may increase from taking on more work, the fixed costs will remain the same. Here is a fictional illustration of how increased mileage can decrease the cost per mile: Miles Cost Per Mile 10,000 $1.09 15,000 $0.95 20,000 $0.85
Running a trucking company is a complex endeavor, and understanding your costs is paramount for success. Ivy Trucks Inc., a fictional trucking company, demonstrates the importance of calculating cost-per-mile to ensure profitability and identify areas for improvement. Let’s break down the components of Ivy Trucks Inc.’s cost-per-mile analysis and explore potential strategies for enhanced financial performance.
Fixed costs are those incurred regardless of the number of miles driven. They include expenses like insurance, property leases, permits, and other services. Ivy Trucks Inc. provided a breakdown of their fixed costs for the month of August, along with the per-mile cost for each category:
Truck Payment: $1,200
Collision/Comp Insurance: $600
Office Lease: $1,000
Health Insurance: $420
Permits: $350
Total Fixed Costs: $3,570
To calculate the per-mile cost, each fixed cost is divided by the total miles driven in August, which is 10,000 miles. This gives a snapshot of how these expenses impact the bottom line on a per-mile basis. For Ivy Trucks Inc., the per-mile cost of each fixed expense can be derived in this way.
Variable Costs:
Variable costs are directly related to operating the trucks and can fluctuate with mileage. These costs encompass items such as fuel, maintenance, repairs, meals, lodging, and taxes. Ivy Trucks Inc. also presented their variable costs for August:
Fuel: $1,700
Tires: $300
Regular Maintenance: $450
Repairs: $560
Lodging/Meals: $380
Taxes: $275
Total Variable Costs: $3,665
Like with fixed costs, the per-mile cost for variable expenses is determined by dividing each cost by the total miles driven, which is 10,000 in this case.
Driver salaries constitute a significant portion of a trucking company’s expenses. For Ivy Trucks Inc., driver salaries for August amounted to $3,750, resulting in a per-mile cost of $0.375.
To calculate the total cost per mile for Ivy Trucks Inc. in August, we need to sum the fixed, variable, and salary costs:
Fixed Costs: Per-mile cost calculated for each fixed expense.
Variable Costs: Per-mile cost calculated for each variable expense.
Driver Salaries: $0.375 (from the given data).
This total cost per mile provides a comprehensive overview of Ivy Trucks Inc.’s financial health and is essential for decision-making.
From the provided charts and calculations, we can draw several conclusions about Ivy Trucks Inc.’s profit and loss:
Total Monthly Cost per Mile: To assess profit and loss accurately, we need to sum the per-mile costs for fixed, variable, and salary expenses.
Identifying Areas for Improvement: If Ivy Trucks Inc. aims to improve profitability, it must focus on reducing per-mile costs. Strategies may include optimizing fuel efficiency, minimizing maintenance and repair costs, and negotiating better insurance rates.
Increasing Revenue: The analysis suggests that taking on more work, thus increasing mileage, can help decrease the cost per mile. This is because fixed costs remain constant while variable costs spread over a larger number of miles. Ivy Trucks Inc. can consider expanding their operations to reduce the overall per-mile cost.
In conclusion, calculating cost-per-mile is a critical aspect of managing a trucking company. Ivy Trucks Inc.’s analysis demonstrates that a comprehensive understanding of costs is essential for informed decision-making. By carefully managing and reducing these costs while increasing revenue through higher mileage, Ivy Trucks Inc. can enhance its profitability and long-term sustainability in the competitive trucking industry.
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