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11CMA-Service or Operating Costing

11CMA-Service or Operating Costing

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Published by: Atul Chandra on Jan 24, 2011
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-:: Learning Objectives ::1. 2. 3. 4.

Understand the Meaning of Operating or Service Costing. Ascertain the Cost per unit of Service Costing. Identify the Cost data with respect to Operating Cost. Compute Cost relating to different types of Industries using Operating Costing or Service Costing such as Transport Costing Canteen Costing Power House Costing Hospital Costing

Definition of Service Costing
y CIMA (Chartered Institute of Management Accountants)

defines Service Costing as

Cost accounting for Services or Functions ( e.g. Canteen, Maintenance, Personnel ). These may be referred to as Service Centers, Departments or Functions

. it is difficult to provide a common cost units.Features of Service Costing 1. Periodical ascertainment of Costs::Cost ascertained periodically. Cost Classification::Costs are classified into Variable or Fixed. 3. It differs from organization to organization. 2. Cost Differs ::As service organizations provide a wide variety of services. generally at the end of specific periods.

Example:. Example:.House .Power Generation Transport Firms Hotels Departments within organizations render services to the production as well as other departments.Hospitals Canteen Boiler.Applications of Service Costing Service Organizations Internal Services Organizations that are engaged in the business of rendering service to outsiders to earn profit are called Service Organizations.

Cost Units ::Nature of Business Goods Transport Passenger Transport Hotels Canteens Hospitals Electricity Supply Water Supply Road Lighting Educational Institutes Cost Unit Per Tonne Kilometer Per Passenger Kilometer Per Room Per Meal Per Patients Day Per Kilowatt Hour Per 1000 gallons Per Lamp Per Full time Students .

Oiling.Special Terminologies Used In Service Costing Fixed or Standing Variable or Charges. E. Diesel. Semi-Fixed or Maintenance Charges all the expenses which are incurred to keep the machine or vehicle or the establishments etc in a proper order or in working condition.g. More the use more the expenses.g. Repair. Garage rent Electricity . Wages of Office expenses Drivers . Lesser the use lesser are the expenses. these charges relates to use of machine .g. . Petrol. Depreciation etc. Running Charges..Insurance Charges Taxes E. E. Replacement of Tyres or tubes etc Which are related to period and these are to be incurred whether service is provided or not.

.

y To compare the cost of using own vehicle with that of using alternative mode of transport. . y To determine what should be charged to departments which use internal transport facility. y To fix the hire charges where vehicles are given on hire.Objectives of a Transport Costing y To ascertain the Operating cost of running a vehicle per Km or Mile. y To fix the rates of carriage of goods or passengers on the basis of operating cost.

Rs. .The Proforma operating Cost Sheet of a Transport Company articulars of Expenditure ( A ) Fixed Costs Manager s Salary Accountant s Salary Driver s Salary Cleaner s Salary Garage mechanic Salary Administrative Overheads Garage Rent Insurance Premium Road Tax & Permit Fee Depreciation Interest TOTAL (A) XXX xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx XXX Per Unit Rs.

) Particulars of Expenditure ( B ) Running Expenses Petrol / Diesel Lubricating oil and other Sundries Tyres and Tubes Spares Repairs and Maintenance Driver s Wages Cleaner s Wages TOTAL ( B ) XXX xxx xxx xxx xxx xxx xxx Xxx XXX xxx xxx xxx xxx xxx xxx xxx Per Unit Rs.The Proforma operating Cost Sheet of a Transport Company (Cont. Rs. .

The Proforma operating Cost Sheet of a Transport Company (Cont.) ABC Motor Transport Ltd. XXXX Rs. XXXX Total Operating Cost (A+B) . Operating Cost Sheet for the Month of Vehicle No.. of Trips : XXXX .: XXX No. Distance Travelled Particulars of Expenditure Per Unit Rs.

Example on a Transport Company y From the following calculate the cost per mile of a vehicle Rs. 15.000 500 100 600 200 0.8 Particulars Value of Vehicle Road License for the Year Insurance charge per Year Garage rent per Year Driver s wages per Month Cost of Petrol per litre .

8 0. y From the following calculate the cost per mile of a vehicle Particulars Miles per Litre Maintenance per mile Estimated Life Estimated annual mileage Ignore interest on Capital .50.000 miles cont.2 1.000 miles 6.Example on a Transport Company Rs.

000 miles )X 6.000 / 1. 0.50.000 miles 2.= ( Rs.70 .Example on a Transport Company y Working Notes ::- cont. 600 500 100 600 2.Depreciation p.15.a. 0.a.400 4200 Cost per Mile Depreciation Road Licence Fee Insurance Charge Garage rent Driver s Salary TOTAL (A) 0.1 Particulars of Expenditure ( A ) Fixed Expenses Total Cost p.Cost of Petrol per Mile = Rs. 1.8 / 8 miles = Rs.

Example on a Transport Company Particulars of Expenditure Total Cost p. Cost per Mile ( B ) Variable Expenses :Petrol Tyre and Maintenance 0.1 0.a.2 Operating Cost of Vehicle per Mile 1. cont.00 .

.

Canteen Costing The Expenses are generally divided into the following Heads y y y y Food Provision Cost Labour & Supervision Cost Maintenance Cost Administration Cost .

.The Proforma operating Cost Sheet of Canteen Firm Particulars of Expenditure ( A ) Food Provision Cost Tea / Coffee Biscuits Milk Eggs / Meat / Fish Vegetables Beverages Fruits TOTAL ( A ) XXX xxx / xxx xxx xxx xxx/ xxx / xxx xxx xxx Xxx Amount Rs.

.The Proforma operating Cost Sheet of Canteen Firm (Cont.) Particulars of Expenditure ( B ) Labour & Supervision Cost Supervisor s Salary Cooks Salary Helpers Salary Cleaners Salary Sweepers Salary TOTAL ( B ) XXX xxx xxx xxx xxx xxx Amount Rs.

.) Particulars of Expenditure ( C ) Maintenance Cost Crockery / Cutlery Cleaning Materials Towels Consumable Stores Gas TOTAL ( C ) XXX xxx xxx xxx xxx xxx Amount Rs.The Proforma operating Cost Sheet of Canteen Firm (Cont.

.) Particulars of Expenditure ( D ) Administration Cost Management Salaries Rent Insurance Repairs and Maintenance Other Administrative Expenses TOTAL ( D ) XXX xxx xxx xxx xxx xxx Amount Rs.The Proforma operating Cost Sheet of Canteen Firm (Cont.

The Proforma operating Cost Sheet of Canteen Firm (Cont. of Meals Served XXX Cost per Meal Served ( I ) / ( II ) XXXXX .) Particulars of Expenditure Amount Rs. ( I ) Total Operating Cost (A+B+C+D) XXX ( II ) No.

of Employees Served ( D ) Cost per Employee ( C ) / ( D) Rs. XXX XXX XXX XXXXX XXX XXXXX XXX XX This Month Last Year Rs. .B ) No.Monthly Statement of Canteen Cost Particulars of Expenditure This Month Rs. XXX XXX XXX XXXXX XXX XXXXX XXX XX Material Consumed Labour & Supervision Cost Other Overheads TOTAL COST ( A) Less Thr Coupons ( B ) Subsidiary given By Company ( C= A.

000 22.000 35. Particulars No.000 30.000 .000 34.000 4. of Employees Sales Realization thr Coupons Material Consumed Labour & Supervision Overheads This Month This Month Last Year 3.Example on Canteen Costing y From the following calculate the increase in subsidy per Head this month in the same month last year.000 39.500 30.000 30.000 50.

000 4.000 34.000 1. of Employees Subsidy for Each Employee So increase in subsidy by company is Rs.000 21 This Month Last Year 30.Comparative Cost Sheet of a Canteen Particulars This Month 50.000 3. 5 per Head .000 35.000 86.19.000 22.000 56.000 30.500 16 Material Consumed Labour & Supervision Overheads TOTAL COST ( A ) Less Sale Thr Coupon ( B ) Subsidy Provided by Company ( A) ( B ) No.000 39.000 30.000 84.

.

y To fix the rates of electricity to be charged to various departments using electricity. y To compare the cost of generating electricity with that of using alternative mode of generating electricity.Objectives of Power House Costing y To ascertain the Operating cost of generating Electricity. .

Cost Per Unit Current Year Rs. ( A ) Steam Generation Cost Coal Labour Water Repairs and Maintenance Supervision Fixed Overheads Total Cost of Steam Generation Less :.Allocated to Heating Cost of Steam utilized for Electricity Generation Steam Used for Generation :Total Cost Previous Year Rs. . Previous Year Rs.The Proforma operating Cost Sheet of a Power House Costing Steam Produced :Units of Electricity Generated :Particulars Current Year Rs.

Previous Year Rs.The Proforma operating Cost Sheet of a Power House Costing Steam Produced :Units of Electricity Generated :Particulars Current Year Rs. Cost Per Unit Current Year Rs. . (B) Electricity Generation Cost Cost of Steam Used Stores Wages Depreciation Repairs & Maintenance Supervision Total Cost Steam Used for Generation :Total Cost Previous Year Rs.

.

TOTAL ( A ) xxx . Depreciation xxx xxx xxx xxx xxx xxx Amount Rs. X-ray etc.The Proforma operating Cost Sheet of a Hospital Firm Particulars of Expenditure ( A ) Fixed Costs Salaries to Staff Premises Rent Repairs and Maintenance General Administrative Expenses Cost of Oxygen .

TOTAL ( B ) xxx .) Particulars of Expenditure ( B ) Variable Costs Doctor s Fees Food Medicines Diagnostic Services Laundry Hire Charges for Extra Beds xxx xxx xxx xxx xxx xxx Amount Rs.The Proforma operating Cost Sheet of a Hospital Firm (Cont.

The Proforma operating Cost Sheet of a Hospital Firm (Cont.) Particulars of Expenditure Amount Rs. of Patient Days XXX Cost per Patient Day ( I ) / ( II ) XXXXX . ( I ) Total Operating Cost (A+B) XXX ( II ) No.

Maintenance Charges y Some of Service Industries.Quick Recap y Objective of Operating or Service Costing y Definition of Operating or Service Costing y Cost Units y Special Terminologies Used In Service Costing as Fixed Charges . Objective and Proforma of Transport Costing with Example Canteen Costing with Example Power House Costing Hospital Costing .Variable Charges.

y Cost Accounting by Tulsian y Cost Accounting : Principles & Practice by Dutta . Ahuja.Reference Books y Cost Accounting by Jawahar Lal & Srivastava. y Cost Accounting by Gupta. Sharma. y Cost Accounting by Ravi Kishore.

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