R OVERVIEW 77. Costing for Tol Roads and Service Concession Arrangements 8, Costing in TT and TTES Industry 9. Costing in Educational Institutions 10. Costing in Financial Institutions 11, Costing in Insurance Companies operating Costing Is the method of ascertaining the costs of providing / operating / rendering a service. 7 It's applicable to undertakings that provide services rather than produce commodities. This method is in the case of ~ (a) Transport Companies, (b) Gas and Water Works Departments, (c) Electricity SuPpIY (a) Canteens, (e) Hospitals, (f) Theatres, (g) Schools etc. that are engaged in the provision of services. ‘cost Units in rendering of Services spe of Operating Costing is to accumulate costs under suitable headings and to express them in terms of Punts of service rendered. Unlike production activities where cost unit is readily ascertainable, operat 7 Tequires the determination of cost units / denominator factors for expression of costs. vers thot have @ bearing on cost are identified based on study of technical and operating data. Thereafter, the cost Mee unique to 2 specific service are identified as the denominator factors. rations of Cost Units usually used in various service undertakings are as below ~ — Patient-Days, Room-Days, Operations. — Guest Days, Room Days. er Transport = © Kilometres, or Passenger-Kilometres. = Quintal-Kilometres or Tonne-kilometres [See Note below). — Number of meals served, Number of tea cups sold etc. = Kilowatt Hours (KWH). [Note: This is referred to as Power “Unit"] = Quantity of Steam raised. — Number of Tickets, Number of Shows, TES Indiustry = Number of Person-Days / Person-Weeks / Person-Months. ‘Absolute and Commercial Tonne-Kilometres unis like Tonne-Kilometres, Quintal-Kilometres etc. may be computed in two ways — (Weighted Average) Tonne-Kilometres: This is the sum total of Tonne-Kilometres, arrived. at By 9 various distances by respective load quantities carried. (Simple Average) Tonnes-Kilometres: It ls derived by multiplying total distance (\.e. Kilometres), By load quantity (Tonnes). 9 Cost Sheet is prepared in the following manner ~ Collection: Costs are accumulated for @ specied period, vi, a month, @ quarter, or @ year, etc ‘Classification: The costs so accumulated are classified under the follawing three heads — ) Fined Costs or Standing Charges, Scanned with CamScanner2. In such a case, the ‘Standard Load’ is selected as the unit, i.e, the load which a reference both to bulk and weight and would give an efficient method for different departments. ‘Thus, if the Turnover of various departments is reduced to the ‘Standard. Load’ by first ‘weight and then the bulk of article produced, the costs of distributing the product can be easily ‘This principle also can be extended for cost with convenient units of service rendered by ‘Management is able to judge whether the Entity Is running efficiently and in the manner in which the ‘be improved or be made more economical. 'S. On the seme principle, the Cost of Electricity Generation is correlated with units generated and also with unts eae - ‘Similarly in Hospitals the cost of their maintenance is co-related to units of ‘Available Bed-Days’, Ht 42.4.5 Operation Cost and Operating Cost ic = Particulars ‘Operation Cost Operating Cost Operation refers to @ stage in manufacturing | Operating Cost refers to te Wil aaa L ‘dtivity where output is converted from one form Providing a utility oF service or: weg ‘into another. Cost of each operation is called | product e.g. transport ene Operation Cost. educational institutions ete. ‘Output of each operation is tangible, measurable ‘ i 2 Neoreor | un ik the input of the | ONY Sees ae provided. There 0 angi a subsequent operation. ae * 3 Gt Costs are classified into Direct Materials, Direct Costs are classified into Fixed oF Labour, Direct Expenses and Production | Charges, Variable or Running Charges ang Overheads. ‘Semi-variable or Maintenance Charges. 4 os ‘At the end of each operation, the unit operation Emphasis is on the ascertainment of eas Expression cost _may be computed by dividing the total | rendering service rather on the operation cost by total output. Manufacturing a product. (0) Fixes Costs include ~ (I) Garage Rent, i) Vehicle Insurance, (li) License Fees (Ww) leaner, etc. paid on monthly bass, 12.4.6 Operating Costs in specified Services (€) Sem Variable Costs include ~ (i) Repairs and Mainteni (2) Fixed Costs include ~()) Salaries of Doctors, Nurses, (b) Variable Costs include - (|) Medical Services lke X {6)_Sem Variable Costs include ~ (|) Repairs and Maintenance, Description to Driver/ Conductor / ‘computed on a time basis, or SLM basis. (b) Variable Costs include - (I) Fuel (Petrol / Diesel), / Cleaner, etc. If related to operations Depreciation relating to usage or activity level. (i) Olls and Lubricants, (ji) Wages to Drive | OF computed as a percentage of Takings { Road Tax, (5 (vi) Administration Costs, (vil) Depresi® Semi Variable Costs include ~ (I) Repairs and Maintenance, (li) (2) Fined Costs include ~ = (I) Room Attendants" 122 Wages based on occupancy, (i) Laundry € ance, (l) Interior Decoration, (ii) Attendants, and Staff, (li) Depreci (Ray, Scanning, (li) General Services| (W) Power, etc, Scanned with CamScannerper month = 6 buses x 20 Kmsx 2 ways x 8 Trips x 25 Days = 48,000 kms. passenger Kilometers per month = 32 x 48,000 = 15,36,000. hintaan Miers wit oad of 24 tonnes of goods from Staton A. i unloads 10 tonnes at Station B and ret of goods at Station back directly to Station A after getting reloaded with 18 tonnes of goods at Station C. The distance between A to Cand then from C to A are 270 kms, 150 kms and 325 kms respectively. Compute ‘Absolute Tonne-Kms’ and Tonne-Kms'. 1. Absolute Tonne-Km 2. Commercial Tonne—Km ] = Average Load x Total distance travelled 770 kn)+(14 MT x 150 km)+(18 MT x 325 km) | = ((24+14+18) opnes) x (270 + 150 + 325) Kes +2,100 + 5,850 = 14,430 Tonne-Kilometres. a = 18,67 Tonnes x 745 Kms=13,907 Tonne—Kilometres. 2. Transport Services-CargoTransport = NO and Freightage Calculation ‘Company has 20 vehicles, which capacities are as follows ~ ss 6 7 2 ] i2Tonne 45 Tonne ___20Tonne | Company provides goods transport service between Station ‘A’ to Station ‘B'. Distance between these Stations is 200 Each Vehicle makes one trip per day an average. Vehicles are loaded with an average of 20% of capacity at the time time of return back loaded with 70% of capacity. 10% of vehicles are laid Cost of Diesel per litre £ 4,000 each Driver Kilometres run per litre each vehicle 2,000 each Helper Lubricant, Oil, etc, 171,500 each Labourer _| Cost of replacement of Tyres, Tubes, etc, © 45,000 Garage Rent (Annual) 24,000 Transport Technical Service Charges. 760,000 Electricity and Gas Charges Depreciation of Vehicles Scanned with CamScannerKms) o Kms : S verdes «200 ks 9 tons» 60% = 6,100 | 5 Vices 200 kms 9 tons 7 42 Ton | 6 Vehicles 200 kms x12 tons « 90% = 12,960 | 6 Vehicles +200 ks 12 tong ‘7 Vehicles %200 kms x15 tons x 90% = 18,900 '5 Vehicles x 200 kms x 2 ways x 25 days = 50,000 6 Vehicles x 200 kms x 2 ways x 25 days = 60,000 7 Vehicles x 200 kms x 2 ways x 25 days = 70,000 2 Vehicles x 200 kms x 2 ways x 25 days = 20,000 Gross Total Less: 10% reduction for repairs ‘Net Total 2. Statement of Operating Costs and Freightage ‘Computation 30,000 x 60% 4,000 x 30 Drivers 2,000 x 25 Helpers € 1,500 x 20 Labourers Given % 24,000 + 12 months 60,000 + 12 months {20 Vehices» 200 kis x2 way) Las 10%) x 25 dys x $38 Given Given, © 90,000 + 12 months Scanned with CamScannerwl daily make 5 trips (to and fro) on an average for 24 days in a month. 1 Oils is € 45 per litre, r of Drivers will be & 6,000 per month - Two drivers will be required fora Truck. uf Expenses € 108,000 pa at full capacity utilisation. Also give your conclusions. comparative Cost Sheet onthe basis of above dala showing anspert oat per fone of cprating 10 enna and 8 1. Working Notes on Cost Items. Particulars 10-MT Truck Set tt ‘of trips per truck per month tripsx 24 days = 120 trips S trips 24 days = 120 trips quantity required to be brought (Given) aioe Hr 2 Ta 120 trips x 10 = 1,200 MT TiO tips « 8 = 960 MT | ber of Trucks required (b + ¢) 20 us cna ‘of Drivers required (d) x 2 Apes bree %2,40,000 3,00,000 716,667 214,167 | £3,33,340 -25.900 4 Years (&) Selary to Policemen= (150 per hour x 3 Hrs x 365) 46) Cost of Operating Trafic Lights 1 1.64.25 0,000 wae 0 State ps. a RT 3, Benefit Cost Ratlo = 7,5 ~ #08 tone: Anernatnvey, Bonet Coat Ratio may aso be computed usin the principles of Proftaity Inex, TO ala Md a a Ca ‘Consider the flowing date ~ "Tot Copia Coot ot 10 km Tol Rogd + 1,000 Crores, wth expected Tol Gallatin Tenure a 10 yeas, “Annual Operating and Maintenance Cost = € 1.8 Crores, a Prot including intrest on Capa «2% on Com. umber of Vehicles expected wo use the Roxd in 10 years = 600 Lakh pa, (assume only one type of Scanned with CamScannerInvolved forthe entire duration of the f : Seen incured forthe project ~€ 187,500 at © $0,000 each, for use in the project and the life of the same is ‘Computation of Effort Costs Absorption Rate (based on Annual Costs) ‘pa. = (€3,00,000 x 5) + (® 4,50,000 x 2) + (€ 6,00,000 x 1) = & 30,00, n Rate = __Service OH 15,00,000 Direct Manpower Cost ~ 30,00,000 Scanned with CamScanneroiler House ~ 10 Men at © 10,000 pm. each, 40 Anciary Station: 80 Men at € 10,000 p.m each, 20 (500 + 1,100 ~ 400) x ® 1,000 10 tonnes x & 25,000 per tonne 500,000 itres x 2.50 per 100 tres 100 tonnes x 275 per tonne (10 Men x ¥ 10,000) + (40 Ancillary x & 2,000) (24,0000 x 12.5%) x5 (10 Men x % 10,000) + (40 Ancillary * € 2,000) 1 (© 12,00,000 x 12.5%) 5 Repairs & Maintenance Given ‘Sub-Total [B.Administration Charges ‘Apportoned - Gen AvB+C+D 7,00,000 - 20,000 Revenues Analysis T 4. —vmle wr of Cub policy, an annual subsidy of upto € 5 per member including cast of nds fh Ci. Te management the Cli bas provide he allowing fares oS Scanned with CamScanner10,000 x 121 7,000 x 123 © 4,000 x 1x 12 Rs.76,667 1/000 Members, Cost per monthet 9,20,000% 1 =* 76,67. So, Cost per Member per month = Computation 7 100 x 1,000 members x 12 months 1200p 500 books x 12 months x 5 day x ® 1 30,000 | 5.x 1,000 members 5,000 WN (1a) 920,000 £300 x 12,000 books 3,60/000 - = 12,80,000 u @=-an (45,000) 2. If the policy is that all new books must be purchased out of Library Revenue. @ ‘number of books that can be purchased = Revere —Total Cost excuding cost of new books ____12,38,000- 920,000 _ ye (Cost of New Books = 300 9S SS 1,050 = 150 books. "3. Comment onthe Subsidy Policy: 'i5 only 0.40% of the Library's Total Revenue, If the Subsidy were not made available, the Library Department's ~ toss will increase by @ 5,000 (i.e. % 50,000 Loss) ) Subsidy Policy may enters ee eh = tit rel bso eae SieaPasa iret vous tom rary schites os uch ties into Price and Efficiency Variances Sahel ‘Corr and Standard Costing reused within a Life Insurance Company and a Standard Cost of &20 hasbeen et for obtaining and issuing each new Life Policy. s ‘to the commencement of the annual financial period, the Life Business Manager had forecast that 7,500 Policies would be the year and © 20 Standard Cost was based on the following Budgeted Costs for the Department. Actual Costs are Scanned with CamScannerOperating Costing ne end of the year it was ascertained that ~ {750 new ile polices had beon issued, ber! Sales Staff and Underwriting Staff received Eee cient enon a Sls, py avid of 125% which had Bon bck dtd oh eon Expenses on Codes 302, 303 and 431 are regarded as Direct Costs ‘with activity, and those on Code 301 are treated as Dect Ftd Cost whit Wows on Coge 809 are on eect Pind ora ~ Present a statement (or Control Report) forthe Life Business Manager showing the variances which have arisen. 2 Comment on the likely cause(s) for each Variance, identifying, 80 far as you can from the information given, how much of ‘each Variance arises from price differences and how much can be related to efficlency or inefficiency. ‘Solution: 1. Bodoeted Recovery Rates areas under ~ Statt Commission = "72000 « & 4 per Poy. Staft Expenses = £150 - 2 ber policy. Underwriting Staff Salaries = © 95200 . & 6 per Poi. 7,500 7,500 2. Variance Statement / Control Report, along with Reasons (7) p Flex. Budget / Original Actual Variances & Explanations Note: Absorbed Costs for | Budget for | for 7,500 | Activity Variance = Colt -Col2 | 6,750 Policies | 7,500 Policies | Policies Price Variance = Col. 2~ Col3 ‘Column dusts a 3 4 Rate Variance = % 3,750 A is due to be Not Applicable 30,000 33,750 | unanticipated pay award = 12.5% of & 30,000. e | ‘Activity Variance % 3,000 (A) Is due to drop in 6,750 x%4= activity from 7,500 to 6,750 polices. Rate 30,000 28,500 27,000 Variance & 1,500 F may be due to reduction in Sales Commission Rate, et. ‘Activity Variance & 1,500 (A) is due to drop in S| 8m | | nao Fert a eons control over expenses. | Activity Variance % 4,500 (A) is due to drop in 6,750x%6= roy soo00 | ®ivty from 7,500 to 6,750 poles. Rate 40,500 | Variance & 5,000 A may be due to unbudgeted | salaries increase 12.5% and / or other factors, Rate Variance © 3,000 (A) may be caused by 33,000 | changes due to high cost Suppliers or hiring Temporary Office Staff, -Ascertainment ‘Student RTP tng acai Ceapondence cours rh bon oft tens who have to undergo wo levels Inter and Final, the latter being open only to those who pass the former, The number of students involved is 12500 and 5,000 for Inter and Final Levels respectively. The Fixed Expenses for the two courses taken together are ~ Not Applicable Rent, Lighting, ete. © 2,45,000 © 13,44,000 Postage, Telephone, etc, 84,75,000 © 3,145,000 ‘Stationery © 1,96,000 12.33 Scanned with CamScanner‘Scanned with CamScanner