oc OPERATING COST d Definition of Operatin, Cost 2 Reopen oC 1 7 poPlicabilty of Operating Cost Oc. 2 . termination of Operating Cost Unit oc. 2 5. Transport Costing oc. 2 6. Transport Cost Statement Oc. 3 2. Power House Costing 0¢.20 8. Proforma of Cost Sheet. ofaPowerHouse OC.20 9. Hotel Costing 0c.22 10. Miscellaneous Solved Problems 0c.26 11. Examination Questions ; “tenses by the number of units used in service. The just weightage of standing cost, the ‘eemination oF an unit must be done with due attention. Service providing undertakings of mates vary in the use of operating cost device. Following is the description of certain OC.1 DEFINITION OF OPERATING COST hgh to CIMA, LONDON, “ perating Cost is that form of operation costing deena there standardised services arp rendered either by on undertaking or by a “Ost center within an undertaking.” It» OC.2 FEATURES OF OPERATING COST hope t 2ndardised services only. ®rtakings which provide services rather than produce commodities. ocanlned murcancaOc.2 OPERA: Cog, Services may be sed or specifically render aw leted. For example ong ca services of adelivery van and the other can take the factlty rendered by Public tran the Sport iv. Thenature of these type of costs are periodical so these are also Considered ag v. Inundertakings where operating cost is applicable, generally the investmen ii tio, coy, ishigh and working capital islow. ; Medan vi. Total cost in this system is divided into two parts i.e. fixed and Variable, normal standing and running charges respectively. Meng vii. Major portion of the total cost consists of standing charges, 0c APPLICABILITY OF OPERATING cost As said earlier thi Operating Cost is applicable in industries which Provide sng than which produce commocites, o itis generally applicablein the following industias i, Transport : Road, Railways, Airlines, Water transport. 7 fi, Welfare Services : Hotels, Banquet Halls, Canteens, Libraries etc, li, Public Utility Services : Hospitals, Gas Su Power House, Cinema, TV Channels etc. iv. Communication Services : Telephone, Mobile, Com v. Entertainment: Theaters, Clubs, Dramas. vi. Municipal Services : Street Lighting, Road Maintenance. ipply Companies, Water Supply Compa puter, Internet Charges, OC.4 DETERMINATION OF OPERATING COST UNIT Acost unit may be a simple cost unit or a comy used it is known as simple cost unit and when a cot isknownas composite cost unit, Please see chapt pound cost unit. When only one cost unit mpound cost unit are merged into one then fer 1 page 1.23 in detail, ( Service Nature Cost Unit } Transport Simple Per Kilometre Canteen Simple Per Meal/ Per Cup Telephone Simple Per Pulse Rate Internet Simple Per hour connection Water Simple Per 1000 litres Passenger Transport | Compound Per passenger/km Goods Transport Compound Per tonne/km Hotel Compound Per room/per day Hospital Compound Per bed/per day Power Compound Per Kilowatt/hr canned wit Uartsca~ tATEMENT = oc.3 les owned on taken on hire can be compar den Not rer to goin fora cheaper means. van nie & (gnP27¥ Tas which are using Motor Vehicle Service - the chargeable price can be pepatt by the operators. * scot my in operating cost of the Vehicle would decide to adopt the cheaper and gi. TO cous means of transport. "arog and maintenance expenses can beleptin control ‘Therel OC.6 TRANSPORT COST STATEMENT Allthe expenses can be divided in two parts for ascertaining the operating cost per unit rt standing Charges : These charges have to be borne, irrespective of the fact whether ghiee is used or not. For example, Licence Fees, Taxes & Insurance, Wages of drivers, tev and conductors, Administrative Expenses, Interest on Money borrowed, National vnce & Labour Welfare Expenses, Garage or Workshop rents, Inspection Expenses and Feedation should be treated asa fixed charge, if itis based upon time. If drivers, cleaners and roucors are engaged on per hour basis-and-not on. salary should’be treated as running apenses. B. Running Charges : These expenses are related with the operation of the vehicle, They aedescribed below : i. Depreciation : Though the expenditure is charged only when the vehicle is in operation and not dependent on time but the depreciation is calculated in the same way as Machine- Hour Rate is calculated. e. Cost less Scrap Value Running Life © Repairs & Maintenance Expenses fi, Tyre Expenses. ¥, Petrol & Diesel Expenses. ‘ tsand Consumable Stores. " drivers, cleaners and conductors are (jet appointed on wages, their expenses should be "ated on per hour or per day work, ' teil caleulating standing expenses, will lead standing expenses per kilometer, itdivided by me reters traveled in a year. Operational cost i.e. Depreciation, Repairs, Maintenance, Oil qi Beton ©xpenses and tyre expenses are calculated separately on per kilometer basis. Rdifgogd or Putation of operational cost, if passenger vehicle total passenger kilometers Sods-carrier, ton or quintal kilometers must be calculated r OC.1; 2 mthe following information calculate totalkms, and total passenger kms : «Number of Buses 5 . ne ‘perated in the month 25 . Diesmade for by each bus 5 Distance of route 20 kms. oneside a CAPacity of Bus % 50 Passengers mal Passengers Travelling 80% of capacity, ocannedoca OPERATING Cos, ; 5 day 20.x 2 = 40 km., so the J hb Jete the five trip (going and returned) every 7 bus tr 0x ba 200 kms. There aie Bie, ra St would be travel 200x 5 = 1,000 kms. and 25 daysin a mois would be travel 1,000x25=25,000kms.~ The capacity of bus is 50 passengers and simply the a 5% Of eapacty, thee, 4 passengers so that the travel will be x 40 = 10,00,000 passengers. MlustrationOC.1: [Oyo Wr A Transport Company bus makes 4 trips daily. The capacity utilised. Every bus operates 25 days in a mont Kilometer and (b) Per Passenger Kilometre ‘buses between two towns, having a distance of 20 kms of each bus is 50 passengers, but normally 80% of capsey th, from the details given below operating cos a) ps @ Wages of Sdrivers, eachgetting co p.m. © Wages of 7 Conductors, each getting 150 pm ‘© Workshop Superintendent'sSalary =m pa. ¢ 2Supervisors, each getting p.m. @ Insurance Premium %1,000 pa. © Road Tax %600 quarterly © Garage Rent 1,000 p.m © Licence Fees of each bus % 200. for Six Months 4 © Electricity Expenses 2100 pm. ‘Employer's Contribution towards National Insurance _%2,000_p.a. The cost of each bus is € 1,00,000. Which is financed by a bank-loan charging 8 % p.a. int The life of each bus is 5,00,000 kms., and at the end of life the scrap value of each bus is estimated 10,000. The cost of repairs and maintenance during the life of each bus is estimated & 20,000. A sets tyres cost € 10,000 and its useful life is estimated 20,000 kms. Lubrication and consumable stores £1.50 perkm. Diesel cost € 10 per litre, and one litre covers 20 kilometers, Solution : yor ™ © Foronebus :20kms.x2(Goandback)x 4 tripx 25days ‘= 4,000 kms. runs onebus. © BusCapacity :50 passengersand 80% capacity utilised = 40 passengerstravelbyal © Foronebus :4,000kms. x 40 passengers 1,60,000 Passengers ks. © Forfive buses :1,60,000x5 8,00,000 Passengershms. BASE PERIOD-ONE MONTH ~ (0 \y> A) Standing Charges: z i. Driver's Wages (5 drivers each getting € 200 p.m.) =5x200=%1,000/5buses | 200.00 fi, Conductor's Wages - (7 Conductors each getting € 150 p.m.) =7x€150 = 11,050/Sbuses | 210.00 fil. Workshop Superintendent's Salary -¥ 5,000 per annum 5,000/12 = € 416.67 p.m. for 5 buses. Foronebus = % 416.67/5 buses 83.33) fv, Supervision Expenses-500p.m.x2 = €1,000/S buses 200.00) v. Insurance Premiums - 71,000p.a.,S01,000/12 = % 83.33 p.m, /5 buses 16.67 vi; RoadTaxation- %600quarterly = 600/(3monthsxSbuses) | 40.00 |. Garage Rent - = T1,000p.m./Sbuses | 200.00 vill, Licence Fees each bus €200 for 6 months, so = 8 200/6 months 33.33 ix. Electricity Charges- p.m. = €100/5 buses 20.00) x. Employer's Contribution towards National: Insurance - canned wit Valniscaa 166.67 /5 buses money borrowed 1 lac for one bus e 1 1,00,000x5 = 5,00,000x8/100 = 40,000 For ithly = € 40,000/5 buses = % 8,000 fhbus monthly , ,000 p.a. / 12 month| Fost standing Charges p.m. ae 33.33] changes 1,703.33 ning Cion = Cost~ Scrap value /Iife total running kms.) er'e,00,000= 10,000 = 90,000, tims. 5,00,000 5,00,000, pep. perkm.=0.18f0r4,000kms. = 0.18 4,000" 720.00 pepairsand Maintenance = © 20,000/5,00,000 kms, Berk. = .04 for 4,000 kms. = .04x4,000" 160.00 sj, Lbscaion & Consumable Stores = 1.50 perkm.x 4,000" 6,000.00 TE sxeeuastl ~ . 710,000 iw, Tyre Expe 20,000 kms. O.Sperkm.for4,000kms. = 504,000" 2,000.00] . 10 perlitre x Diesel- Coverage 20 kms? 50 paise perkm., for 4,000kms. = 50x4,000* 2,000.00) Running Charges Per Month 10,880.00 Total Expenses p.m. 12,583.33 a. Operating Cost per km. = 12,583.33/4,000 3.146 'b. Operating cost per passengerkm. = 12,583.33/1,60,000 =*0.079 No o wo Z 1. Ifneedsonlyoperatingcostthen - Standing Charges _ 1,703.33 249.426 4,000 kms. 4,000 2. Ifneeds only operating cost, no need to calculate variable charges p.m., only per Kilo Meter expenses will becalculate as below : Variable Charges- Depreciation per km. 0.18 Repairs & Maintenance per km. 0.04 Lubricants and consumablestoresperkm. 1.50 ‘Tyre Expenses perkm. 0.50 Diesel Expenses perkm. 050 ‘Standing Charges per km. 0.426 Variable Charges per km. 2220-] Mas Operating Cost per km. tation OC.2 : PA Drs A Transport Co i vhich are 50 kilometers apart. pany is running four buses between two towns which are 5| meters apa Fatacopecty of each bus is 40 passengers. The following particulars were obtained from their books i zt Caa6 Wages of Drivers, conductors & cleaners Salaries of Office and Supervisory Staff Diesel and other oils Repairs and Maintenance canned wTcanscaOC.6 OPERATING Cost © Interest & other charges @ Taxation, Insurance and other fixed costs © Depreciation fixed m= Actual passengers carried were 75% of the seating capacity. All the four buses ran on all the days of the month. Each bus has made one trip per day. Find out the cost per passengers kilometer. ——_—— Solution : © 50kms. x 2 (go& back) x 1 tripx 30 days = 3,000 kms. nuns one bus. © BusCapacity 40 passengers & 75% capacity utilised = 30 passengers travel by a bus. © Foronebus : 3,000 kms. x 30 passengers = 90,000 Passengers kms. © For four buses : 90,000 x 4 = 3,60,000 Passengers kms. per month. A) Standing Charges: PerMonth | Per Passenger @®) kms. (%) Wages of Drivers, Conductors & Cleaners 2,400 Salaries of office and supervising staff 1,000 Taxation, Insurance & other fixed cost 1,600 Interest and other charges 2,000 Depreciation (fixed)' 2,600 Total Fixed Charges 9,600 B) Running Charges: * Repairs and Maintenance 800 Diesel Oil 4,000 4,800 Total Expenses 14,400 % Operating Cost per Passenger Kilometers = 714,400 /3,60,000 passenger kms. = 0.04 or 4 paise Notes: 1. Ifthe depreciation is constant therefore, vel , i then theexpenses shouldbe treated astinad. °° NOt dePend on running but, deperdon 2. The Operating Cost can get to add the . expenses should be divided to each oe nang Expenses and Running Expenses or both --ae 2 Scanned with CamScaOperating Costing (Service Costing) 0 11.3 determination of Number of Cost Units The cost unit in passenger transport is usually a passenger kilometre and in goods tusport it is a tonne-kilometre. The calculation of the total number of cost units is ihstrated: Unstration 11.1. A Delhi-Jaipur Transport Co. runs four buses between two towns which 50 kms apart. The seating capacity of each bus is 50 passengers and actual passengers tied are Sida of the seating capacity. All the 4 buses run on 25 days in a month and each makes one round trip per day. Calculate passenger-kms. Solution Capacity of Capacity — Round — No. of Passeny of a E, aeattts ae = ie o" x Distance * * utilised ia dg uses =4x 50% 50%*8 = 4,00,000 passenger each bus 0% * 2 * 25 kilometres per month tonne-km Msolute tonne-km and commercial i tansport costing, composite gost units may be computed in two ways— and (b).comme () absotute tonne-kim vig between cach (wo stations is caleulated nt * . In-aheatuea tanne-km, cost UNUM | But in commercial tonne-km, the trip is rcial tonne-km Scanned with CamSca2, 2aw | 3, Taxation, insurance capital 4, Interest 0” 10,509 ] variable Charees ‘| 1. Diesel and other 0” s ‘a 2, Repairs and maintenance 0.320 3. Depreciation 200 Total Cost 15,429 + No. of passenger-kms 8,64,000 = 3 Paise n = Total Cos Cost per passenger-km = %25,920 + Devi Lal owns 2 fleet of taxis and the following information is avail vailable fy om problem 11-3 his records: Number of taxis 10 Cost of each taxi ae Salary of manager 600 | Salary of accountant 500 pam. | Salary of cleaner 300 pm | Salary of mechanic 4 a Garage rent 00 Be Insurance premium ae ‘a aan um 600 per taxi Annual tax ow ; Scanned with CamScalo kaw Lig \io Wk Operating Costing (Service Costing) 011.9 river's salary 200 p.m. per taxi onal repair 1,000 per taxi yout ife of @ taxi is about 2,00,000 kms. A taxi runs in all 3,000 kms in a month oF ya ses empty. Petrol consumption is one li soe sundries are €5.00 per 100 kms. Calculate th for 10 km @ %6.80 per litre. Oil st of running a taxi per km. (CWA Inter) gotation Operating Cost Sheet for the period = Per km ie fixed cost per month (for 10 taxis) Manager's salary ‘Accountant’s salary salary of cleaner salary of mechanic Garage rent Total Fixed cost per taxi (2,300 + 10) Insurance Preminum ( 83.33 Taxes (600 + 12) 50.00 Driver’s salary __200.00_ : 563.33 Fixed cost per km (2563.33 * 2,100 km) 0.27 Variable costs per km Depreciation per effective km (20,000 * 1,40,000 km*) 014 680 km = %2,040 tm monthly “yp” * 5000 em ° — ee rscrive kan = £2,040 ~ 2100 Emi = 8 ae o (\__ 200 Repairs | 77% 2,100. : : 0.04 | : jes (2150 * 2100 km*) i Oil and other sundrie m per taxt [eer Oloaet | be 1.49 s only 70% as a —— |. ras led taking ij ecu ta ia costs have been inflated preg en® 8ceOU! stat ated presuming thee ae resiaonth = 3000 less 30% 2,00,000 less 30%, ansport business, sted trans? With a fleet of OF 10 taxi singh staf Problem naw pe given below: operating the Me Expenses of il iat 7 ocdiitfeu win UamSca