Presentation on operating costing and service costing

1. Dr. Mohamed Kutty Kakkakunnan
Associate Professor
P.G. Dept. of Commerce
NAM College Kallikkandy
Kannur- Kerala- India

2. S E R V I C E ( O P E R AT I N G ) C O S T I N G
- A form of costing used by firms engaged in
rendering of standardized services to its
customers
- To determine the total cost of rendering services
and controlling the cost of rendering service
- Basic objective is to ascertain the cost of
producing and maintaining a service
- Adopted by transport services, supply services,
welfare supplies, municipal services etc

3. Transport Costing
 A method of costing used by transport services
rendering undertakings to ascertain the cost of
rendering transport services – either passenger
transportation or goods transportation
Ascertainment of Total Cost
 Following steps are taken to determine the total
costs
- 1. Determination of cost units
- 2. Compilation of costs and preparation of cost
statements

4. 1- Cost Units
Two types of cost units –
a. Simple cost units – when only one characteristic
feature is used for determining the cost unit
Eg., Kilometer, tonne, passenger etc
a. Composite cost units – when two or more
characteristics are considered for cost unit
Eg. Passenger Kilometer, Tonne Kilometer
In transportation costing, generally composite cost units
are used such as passenger kilometer, tonne
kilometer etc

5. Const unit contd…
 while determining the cost unit number of vehicles,
kilometers ran, number of days and number of trips,
number of passengers (weight of goods) etc., need be
considered
Eg. Number of buses - 10; days operated in a month -25;
number of round trips by each bus – 4; distance of
route (one side) 40 kilometers; capacity of bus – 40
passengers ;normal passenger travelling 90% capacity
In this case kilometers = Number of Buses X Number of
Days X Number of Trips X Distance
= 10 x 25 x 4 x 2 x 20 = 40,000 kms
Passenger kilometer = Number of Buses X Working Days X
Trips X Distance X Passengers
= 10 x 25 x 4 x 2 x 40 x 90% = 14,40,000 passenger Kms

6. 2- Ascertainment of Cost
To ascertain the cost in operating costing an operating
cost sheet will be prepared
operating cost sheet is similar to that of ordinary cost
sheet, but the total costs are classified as :-
1. Standing or fixed charges – “charges or expenses
incurred irrespective of the kilometers run – Eg.
Salary of manager, motor vehicle tax, insurance etc
2. Maintenance charges or semi-variable Eg. tyres,
repairs and maintenance, painting, overhauls etc
3. Operating or running charges – variable expenses,
which vary according to the kilometers. Eg. Petrol, oil
etc. include all expenses made or incurred according
to kilometers ran

7. Specimen form of an operating cost sheet
A. STANDING CHARGES (FIXED COSTS) :-
Garage rent
Insurance
Motor vehicle tax
Interest on capital
Other fixed expenses
Total
B. MAINTENANCE CHARGES (COSTS)
Tyres and tubes
Repairs
Paintings
Overhauling
Other semi-variable expenses
Total
C. RUNNING CHARGES (OPERATING COSTS)
Petrol
Oil
Wages
Other variable expenses
Total
Grand Total ( A+B+C)