OPERATING COSTING. The method of costing used in service rendering undertakings is known as operating costing.

Transcription

1 OPERATING COSTING INTRODUCTION The method of costing used in service rendering undertakings is known as operating costing. This method of costing is generally made use of by transport companies, gas and water works departments, electricity supply companies, canteens, hospitals, theatres, schools etc. OPERATING COST SHEET Preparation of Cost Sheet under Operating Costing: For preparing a cost sheet under operating cost, costs are usually accumulated for a specified period viz., a month, a quarter, or a year etc. All of the accumulated costs should be classified under the following three heads: 1. Fixed costs or standing charges, 2. Variable costs or running charges,( Fuel, Driver Wages, Depreciation, oil etc.) 3. Semi-variable costs or maintenance costs. (Supervision salary, Repairs and Maintenance) Note : In the absence of information about semi-variable costs, the costs may be shown under two heads only, i.e., fixed and variable. Under operating costing, the per unit cost of service may be calculated by dividing the total cost for the period by the total units of service in the period. Particulars Total cost Cost km per A Standing charges :- License fees Insurance Premium Road tax Garage rent Driver s wages Attendant-cum-cleaner s wages Salaries and wages of other staff

2 Total B Running charges :- Repairs and maintenance Cost of fuel (diesel, petrol etc.) Lubricants, grease and oil Cost of tires, tubes and other parts spare Total Depreciation C Total charges [ (A) + (B) ] COST UNITS FOR VARIOUS ENTERPRISES CHART SHOWING COST UNITS FOR VARIOUS ENTERPRISES : No. Enterprise Cost per unit 1. Railways or bus companies Per passenger-kilometer 2. Hospital Per patient/day, per bed/day 3. Canteen Meals served, cups of tea 4. Water supply service Per 1000 gallons 5. Boiler House 1000 kg of steam 6. Goods Transport Per tonne km, quintal km 7. Electricity Boards Per kilowatt hours 8. Road maintenance department Per mile or road maintenance 9. Bricks One thousand 10. Hotel Per room/day BASIC FORMULAS 1. Absolute (weighted average) tonnes-kms: Absolute tonnes-kms., are the sum total of tonnes-kms., arrived at by multiplying various distances by respective load quantities carried. Absolute Tonne Km = Dist1 x Qty1 + Dist2 x Qty2

3 2. Commercial (simple average) tonnes-kms : Commercial tonnes-kms., are arrived at by multiplying total distance kms., by average load quantity. Commercial Tonne Km = Total Dist x Average Qty EXAMPLE A lorry starts with a load of 20 tonnes of goods from station A. It unloads 8 tonnes at station B and rest of goods at station C. It reaches back directly to station A after getting reloaded with 16 tonnes of goods at station C. The distance between A to B, B to C and then from C to A are 80 kms., 120 kms., and 160 kms., respectively. Compute Absolute tonnes-kms., and Commercial tonnes-kms. Solution Absolute tonnes-kms. = 20 tonnes 80 kms + 12 tonnes 120 kms + 16 tonnes 160 kms. = 5,600 tonnes-kms. IMPORTANT QUESTIONS FOR THEORY Commercial tonnes-kms. = Average load total kilometres travelled 16 tonnes( i.e. ( )/3 ) 360 kms. = 5,760 tonnes-kms. Question 1: The more the kilometre you travel with your own vehicle the cheaper it becomes. Comment briefly on the statement. Solution: The given statement is based on the fact that when we travel more, the costs which are fixed in nature or do not vary with output remain same. As we all are aware of the fact that all the costs can be classified as fixed and variable in nature. In the above case, the costs relating to cost of vehicle( i.e. depreciation), wages of driver etc. are fixed costs and on the other hand, fuel expenses, repairs and maintenance etc. are variable. As we travel more and more, there is a proportionate rise in variable costs and fixed costs remain the same. Thus, when we compute the cost per kilometre, it keeps on declining for more kilometres and Hence, the travelling becomes cheaper. Question 2: Write a short note on operating costing? Solution: Operating Costing - The method of costing used in service rendering undertakings is known as operating costing. This method of costing is generally made use of by transport companies, gas and water works departments, electricity supply companies, canteens, hospitals, theatres, schools etc.

4 TREATMENT OF SOME SPECIAL ITEMS REVSION ILLUSTRATION Depreciation - Depreciation if related to effluxion of time, may be treated as fixed. If it is related to the activity level, it may be treated as variable. Interest - If information about interest is explicitly given, it may be treated as fixed cost. The Union Transport Company has been given a twenty kilometer long route to ply a bus. The bus costs the company ` 1,00,000. It has been insured at 3% per annum. The annual road tax amounts to ` 2,000. Garage rent is ` 400 per month. Annual repair is estimated to cost ` 2,360 and the bus is likely to last for five yea` The salaries of the driver and the conductor are ` 600 and ` 200 per month respectively in addition to 10% of the takings as commission to be shared equally by them. The manager s salary is ` 1,400 per month and stationery will cost ` 100 per month. Petrol and oil will cost ` 50 per 100 kilometres. The bus will make three round trips per day carrying on an average 40 passengers in each trip. Assuming 15% profit on takings and that the bus will ply on an average 25 days in a month, prepare operating cost statement on a full year basis and also calculate the bus fare to be charged from each passenger per kilometer. Solution Union Transport Company Statement showing operating cost of the bus per annum: A Standing Charges: Manager s salary (` 1,400 * 12) = 16,800 Driver s salary (` 600 * 12) = 7,200 Conductor s salary (` 200 * 12) = 2,400 Road tax = 2,000 Insurance (3% of ` 1,00,000) = 3,000 Garage rent (` 400 * 12) = 4,800 Stationery (` 100 * 12) = 1,200 Depreciation (` 1,00,000/5 years) = `20,000 B Maintenance Costs Repairs `2,360 C Running charges: Petrol and oil (36,000 km. * ` 50)/100= `18,000 Total costs (A+B+C) 77,760 Add: 10% of takings for commission of driver and conductor 15% Profit desired on takings 25% on total takings = 33-1/3 of cost 25,920 ` 1,03,680 Calculation of total distance covered: (20 km. * 2 * 3 * 25 * 12) = 36,000 km. per annum.

5 Calculation of bus fare to be charged: Effective passenger kilometers: (2 * 20 km * 3 trips * 40 passengers * 25 days * 12 months) = 14,40,000. Rate to be charged per km. from each passenger: = ` 1,03,680 /14,40,000 = `