FULL NAMES:
STUDENT NUMBER:
UNIQUE NUMBER: 711826
MODULE CODE: TRL3706
MODULE NAME: ROAD TRANSPORT
DUE DATE: 14 AUGUST 2023
, You are a road transport expert. Discuss the basic cost concepts of the road
transport.
1. Fixed costs
Fixed costs are costs that do not change as output changes. In road transport this
means that these costs remain constant, irrespective of the distance covered or the
number of vehicles or vehicle-hours that are operated at a particular moment. Fixed
costs apply before any service has been rendered, and they remain fairly constant for a
given capacity. However, if there is a change in capacity, the fixed costs will change
(e.g. when buildings or vehicles are purchased or sold, or when vehicles are replaced
by others with a different carrying capacity). Fixed costs therefore tend to change in the
long term. In road transport, fixed costs are divided into two groups. First, there are
costs relating to vehicles (i.e. standing costs) such as interest on capital, depreciation,
licences and insurance. Second, there are costs that do not relate directly to vehicles,
but have to be incurred to render transport services. These costs include fixed salaries,
the capital cost of buildings, property tax, and so forth. These costs are known as
overheads and are directly related to the size of the enterprise. We see, then, that fixed
costs are based on the use of indivisible assets. These costs cannot be ascribed to
specific services, trips or routes on the basis of physical measurement. The implication
of this indivisibility for costing is that fixed costs have to be allocated to a specific
service, trip or route.
2. Variable costs
Variable costs, unlike fixed costs, vary as output changes (measured in terms of the
number of kilometres, ton-kilometres or vehicle operating hours). These costs occur
repeatedly and are measurable for each output unit, and they increase or decrease as
output units increase or decrease. If the intensity of vehicle use remains the same and
the vehicle is operated under approximately the same conditions, the variable costs will
vary more or less in proportion to the change in output units. Typical variable costs in
road transport are the running costs of vehicles in terms of fuel, tyres and maintenance.
Since variable costs vary according to the output units of a road transport enterprise,
they can be measured fairly accurately and readily allocated to even minor output units.
STUDENT NUMBER:
UNIQUE NUMBER: 711826
MODULE CODE: TRL3706
MODULE NAME: ROAD TRANSPORT
DUE DATE: 14 AUGUST 2023
, You are a road transport expert. Discuss the basic cost concepts of the road
transport.
1. Fixed costs
Fixed costs are costs that do not change as output changes. In road transport this
means that these costs remain constant, irrespective of the distance covered or the
number of vehicles or vehicle-hours that are operated at a particular moment. Fixed
costs apply before any service has been rendered, and they remain fairly constant for a
given capacity. However, if there is a change in capacity, the fixed costs will change
(e.g. when buildings or vehicles are purchased or sold, or when vehicles are replaced
by others with a different carrying capacity). Fixed costs therefore tend to change in the
long term. In road transport, fixed costs are divided into two groups. First, there are
costs relating to vehicles (i.e. standing costs) such as interest on capital, depreciation,
licences and insurance. Second, there are costs that do not relate directly to vehicles,
but have to be incurred to render transport services. These costs include fixed salaries,
the capital cost of buildings, property tax, and so forth. These costs are known as
overheads and are directly related to the size of the enterprise. We see, then, that fixed
costs are based on the use of indivisible assets. These costs cannot be ascribed to
specific services, trips or routes on the basis of physical measurement. The implication
of this indivisibility for costing is that fixed costs have to be allocated to a specific
service, trip or route.
2. Variable costs
Variable costs, unlike fixed costs, vary as output changes (measured in terms of the
number of kilometres, ton-kilometres or vehicle operating hours). These costs occur
repeatedly and are measurable for each output unit, and they increase or decrease as
output units increase or decrease. If the intensity of vehicle use remains the same and
the vehicle is operated under approximately the same conditions, the variable costs will
vary more or less in proportion to the change in output units. Typical variable costs in
road transport are the running costs of vehicles in terms of fuel, tyres and maintenance.
Since variable costs vary according to the output units of a road transport enterprise,
they can be measured fairly accurately and readily allocated to even minor output units.
