This document discusses operating costing, which is used to ascertain and control costs for service industries. It provides examples of cost units like passenger-kilometers and room-days that are used in industries like transport, hospitals, lodging houses, and cinemas. For transport specifically, operating costs are expressed in terms of running kilometers, passenger kilometers, or ton-kilometers carried. The document outlines the costing process and types of problems encountered in transport costing.
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UNIT 3 OPERATING COSTING.pptx
1. SRM INSTITUTE OF SCIENCE & TECHNOLOGY
DEPARTMENT OF COMMERCE
UCM18601 COST ACCOUNTING II
UNIT III OPERATING COSTING
2. OPERATING COSTING
MEANING
Operating costing is a method of costing designed to ascertain and
control the costs of services. Those industries or organisations which do not
produce any product but render some service to customers can use this
method.
DEFINITION:
According to Wheldon, "operating costing actually is unit costing as
applied to the cost of services."
3. RANGE OF APPLICATION OF OPERATING COSTING METHOD
INTERNAL SERVICES: Services rendered by time keeping, canteen, boiler,
etc., to other departments within the same firm.
EXTERNAL SERVICES: Services to outside customers at a charge or even
freely to the members of the general public.
(a) Consumer supply services like electricity, water and gas.
(b) Transport services like Air, Sea, Rail and Road.
(c) Recreational services like cinemas, sport clubs, libraries.
(a) Public welfare services like hospitals, street lamps, garbage clearing
(e) Miscellaneous commercial services like lodging houses, banks
insurance, etc.
4. OPERATING COST UNITS
The cost units in service costing are not as tangible or obvious as in unit or job costing.
Selecting appropriate cost unit depends on the nature of service. The cost units can be
'single units' like Hours, Running miles, or "composite units” which are combinations of
two or more units like “passenger mile” “room-day”.
The following are some of the cost units normally used in different service
(a) Passenger transport - Passenger-k.m./mile.
(b) Goods transport - Ton-mile/k.m.
(c) Hospitals (in-patient) - Patient-bed-day
d) Lodging Houses - Room-day
(e) Cinema theatres - Man-show
(f) Power generation - Kilowatt-hour
(g) Road-lighting - Per lamp post
5. OPERATING COSTING IN SOME SERVICE INDUSTRIES
I. TRANSPORT COSTING - Operating costing as applicable to transport services
The term Transport' includes all modes of transport like Air, Water, Rail and Road.
However, the present discussion is confined to Road transport only. Road transport
includes both passenger transport and goods transport. It may be carried out by Trucks,
Buses, Tempos, Taxis etc.
OBJECTIVES:
(a) Cost ascertainment
(b) Price fixation
(c) Quotations
(d) Decision data
(e) Control over maintenance
(f) Operational efficiency
6. BENEFITS OR ADVANTAGES OF OPERATING COSTING IN TRANSPORT
ORGANISATIONS:
(a) Reliable prices
(b) Cost recovery
(c) Cost control
(d) Policy decisions
(e) Logistics
COSTING PROCEDURE IN TRANSPORT COSTING :
I. Classification of costs
A) Fixed or Standing charges B) Semi Variable or Maintanence Charges C) Variable or
Running or Operating charges
II. Accumulation or Collection of costs
III. Presentation of costs
7. Computation of ‘cost unit' in Road Transport business
Operating costs are expressed in terms of running kilometres or passenger
kilometres or Ton-kilometres.
1. A running kilometre is one kilometre distance travelled by a vehicle,
irrespective of the load carried.
2. A passenger kilometre is 'carrying one passenger over a distance of one
kilometre’.
3. A Ton-kilometre is 'carrying a load of one ton over a distance of one
Kilometre’.
8.
9. TYPES OF PROBLEMS
Problems on road transport costing can be sub-divided into seven broad
varieties.
A, Computation of cost unit
B, Running distance cost
C, Passenger transport cost
D, Goods transport costs
E, Comprehensive Costs
F, Journey contracts and quotations
G, Transport cost decisions involving alternative choices
10. II. POWER HOUSE OR BOILER HOUSE COSTING
Large sized factories may have their own power generation unit. It is treated
as internal service. It is essential to ascertain the rate of power or steam
generated to charge it to the user departments.
III. COSTING FOR CINEMA THEATRES
Cinema' is a medium of mass entertainment. The theatres or halls which show
the movies have to recover their expenses and profit from the ticket sales.
IV. COSTING FOR LODGING HOUSES
Hotels and Lodges providing accommodation to customers on daily basis
have mushroomed all over the country due to the impetus provided by
modern civilisation to ‘Travel', both on personal and commercial work