Paper 3A: Cost Accounting Chapter 6CA. Dharmendra Gupta, FCA

11 • Meaning & Features Of Operating Costing

22 • Applicability of Operating Costing

33 • Costs Classification

44 • Cost Unit in Operating Costing

55 • Absolute & Commercial Tonne Kilometers

66 • Operating Cost Statement

77 • Difference Between Operation & Operating Costing

88 • Examples and Problem

Method of ascertaining the Costs of Providing / Rendering /Operating a service

Also called Service Sector Costing

Adopted By Service Providers

Transport Services

Hospitals

Electricity Supply Companies

Telecommunication Service Providers

Cinemas

Schools

Boiler House

Fixed or Standing Charges

Variable Costs or Running Charges

Semi Variable Costs or Maintenance Costs

• Patient-Days, Room-Days, Operations

Hospitals

• Tonnes , Kilometers, Tonne-kilometers

Goods Transport

• Passenger , Kilometers , Passenger-Kilometers

Passenger Transport

• Number of Ticket or Shows

Cinema House

Absolute Tonne-Kilomete• Sum of Multiplications of Tonnes and

Kilometers

Commercial Tonne-kilometers• Product of Average Tonnes and Total

Kilometers

Operating Cost Statement Of a Bus For a MonthParticulars Rs.

A. Standing ChargesDepreciationRoad TaxInsuranceManager’s SalaryOffice Expenses

B. Maintenance ChargesGarage RentRepairs

C. Operating or Running ExpensesDiesel and OilDriver’s SalaryConductor’ Salary

Grand Total (A+B+C)

Passenger- Kilometers

Cost per Passenger -Kilometer

Operating Costing• Costing of Providing/Maintaining /Rendering Services• No tangible output• Costs are classified on the basis of nature• Cost per service unit is calculated

Operation Costing• Where output of one stage becomes input of other stage• Tangible or measurable output• Costs are classified on the basis of Functions• Cost per unit of output is calculated

Calculate Total passenger-kilometers• Number of Buses -6• Days in a month -25• Trips made by each Bus in a day- 8• Distance (one way) -20 Kms• Capacity of a Bus-40 Passengers• Capacity utilisation -80%

Calculation of Total passenger-kilometers

• No. of Passengers = 40 X 80%=32• Kms by a Bus in a Day= 20 kms X 2 ways X 8 trips

= 320 Kms.• Kms by a Bus in a Month = 25 days X 320 Kms.

= 8000 Kms.• Total Kms. By all 6 Buses= 6 Buses X 8000 Kms.

= 48000 Kms.• Total passenger- kms.= 32 passengersX 48000 Kms.

= 15,36,000 Passenger- Kms.

Commercial tonne- kms. & Absolute tonne-kms

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 to station A after getting reloaded with 16 Tonnes of goods at Station C

The distance between A to B, B to C and from C to A are 80 Kms., 120 kms. And 160 Kms. Respectively

Absolute Tonne-Kilometers• A to B + B to C +C to A• ( 20 T X 80 Kms) +( 12 T X 120 Kms ) + (16 T X 160 Kms )• 1600 + 1440 + 2560 = 5600 Tonne-Kilometers

Commercial Tonne- Kilometers• Average Load = ( 20 T + 12 T + 16 T )/3 =16 T• Total Distance Covered =80 +120 +160 =360 Kms.• Commercial Tonne- Kms = 16 T X 360 Kms

=5760 Tonne- kms

Analysis of Maintenance cost of two years is given

Year Total Distance MaintenanceRs.

1 1,60,000 4,60,000

2 1,50,000 4,50,000

Segregation of Semi-Variable Costs into Fixed and variable Costs

Variable Cost per Km. = Change in Costs/ Change in Kilometers

• (460,000 – 450,000) / (160,000- 150,000)• Re. 1 per Km

Total Fixed Costs = Total cost – Total Variable Cost ,at any of the levels• At 1,50,000 Kms Level• Total Variable Cost @ Re. 1 = 150,000 X 1 = 150,000• Total Fixed Costs = 450,000 – 150,000 =Rs. 300,000

Total Coal to handled = 24,000 tonnes in a Month

Capacity of a Truck = 10 tonnes

Trips in a Day =5

Days in a Month = 24

Find number of Trucks required?

Capacity of a Truck = 10 tonnes

No. of Trips = 5

Tonnes handled by a Truck in a Day = 10 X 5 = 50

Total Tonnes by a Truck in a Month =50 X 24 Days =1200 Tonnes

No. of Trucks Required = Total Requirement/ Tonnes done by a Truck in a Month

=24,000 / 1200 =20 Trucks

• In this chapter we have discussed

1 • Meaning & Features Of Operating Costing

2 • Applicability of Operating Costing

3 • Costs Classification

4 • Cost Unit in Operating Costing

5 • Absolute & Commercial Tonne Kilometers

6 • Operating Cost Statement

7 • Difference Between Operation & Operating Costing

8 • Examples and Problem

1 • What do you mean by Operating costing?

2 • What are features of Operating costing?

3 • Differenciate Operating & Operation Costing?

4 • What is Absolute and Commercial tonne –kilometer?

5 • What is The Cost unit in different service industry?

6 • How can be classify cost in oparating costing?

7 • What will be % profit in cost, if profit on sales is 25%?

8 • Name some industries where it can be used?