name: kazi minaaz .m. shafi class: sybbi (banking...
TRANSCRIPT
NAME: KAZI MINAAZ .M. SHAFI
CLASS: SYBBI
(banking & insurance)
ROLL NO: 04
SUB: M.A (MANAGEMENT
ACCOUNTING)
TOPIC: operating/service
COSTING
PROJECT: 1STPROJECT
PROF-IN-CHARGE: MRS.AARTI
VERMA
I have made sincere efforts in this project. I have referred different books and collected information through internet.
First of all, I would like to thank our respected teacher Mrs. AARTI VERMA for her suggestions, encouragement and support.
Secondly, I would like to thank our respected principal of the college Mrs. ARJUMAND RAWAL and library staff for providing reference books.
Last but not the least; I would like to thank my parents for their support and co-operation.
YEAR: 2011-2012
CLASS: SYBBI (BANKING & INSURANCE)
This is to certify that the work
entered in this project is the work of
Miss. KAZI MINAAZ .M. SHAFI class:
SYBBI (BANKING & INSURANCE) roll no: 04
who has worked satisfactorily for the
entire project of the year 2011-2012
studying in A.E. KALSEKAR DEGREE
COLLEGE.
__________ __________
College stamp: Teacher’s sign:
SERVICE COSTING/
OPERATING COSTING
INTRODUCTION:
DEFINITION:
1. According to ICMA, London,
“Operating costing is that form of operation
costing which applies where standardized services
are provided either by an undertaking or by a
service cost center within an undertaking.”
2. According to Wheldon,
“Operating costing is actually unit costing as
applied to the costing of services.”
IMPORTANCE:
Service costing is also termed as operation
costing, operating costing, period costing or terminal
costing. Each service, example a specific chartered trip
undertaken by a transport bus or a truck or an aircraft
or a helicopter, etc., is considered as a separate unit
cost. Service costing is concerned with the technique
and process of ascertaining the cost of rending services.
Operating costing is the process and technique of
accumulation and ascertaining the cost of service. In
case of operating costing the method of ascertaining
cost is quite different from that adopted in production
undertakings.
BASIC FEATURES OF
OPERATING COSTING :
1. Service costing involves distinction of cost into
fixed and variable costs.
2. Service costing is necessary to ascertain the total
cost of service and the unit cost of service.
3. Service costing is applicable for undertakings which
do not produce physical articles for sale and stock
but it is applicable for undertakings providing
services and selling services to the customers.
4. Services are intangible and highly perishable.
5. There is no inventory of the services rendered.
6. The total cost of service is averaged over the total
amount of service rendered.
7. Service costing is an extension and refined form of
process costing.
8. Service costing is not a separate and distinct
method of costing.
9. Under operating costing, costs are classified into
fixed, operating and maintenance costs.
10. Operating costing is applied to transport
supply, hospitals, theatres, boiler houses, power
houses, rail, airlines, trams, shipping, Hotels and
motels, and other service enterprises.
11. Operating costing is actually unit costing as
applied to the costing of services.
12. Operating cost works with units of costing, the
cost unit is not as tangible as a job or a contract.
13. Selection of a suitable cost unit in operating
costing is a difficult task and therefore it requires
highly skilled, technical and statistical talent on the
part of the cost accountant.
14. Service costing helps to ascertain the cost
which helps to quote prices for the services
rendered.
APPLICABILITY OF SERVICE
COSTING:
1) Transport costing:
Transport services include
railways, roadways, trams, airways and waterways.
Selection of the cost unit is very important. In
selecting the cost unit it is necessary to take into
consideration factors like number of passengers,
tonnage carried, distance covered, capacity, load
carried, etc. the cost unit in transport enterprises is
usually tone-km., passenger-km., tec.
The cost per unit is calculated as follows:
Number of vehicles x Capacity x km. x Days x Passenger/Weight actually carried.
For preparing operating cost statement; costs
are classified into three categories.
a) Fixed charges:
It is also termed as standing
charges. They remain fixed irrespective of
whether the vehicles are operated or remain
idle.
Example:
Depreciation, Insurance premium, License
fees, Road taxes, Interest on capital,
Supervisor’s salary, Garage rent, General
supervision costs, salary of operating manager,
etc.
b) Operating charges:
It is also termed as
running charges. They are variable costs.
Such costs vary daily according to the
operations and extent of uses.
Example:
Drivers wages, Lubricating oil, Oil,
Grease, Petrol, Gas, tec.
c) Maintenance charges:
Maintenance charges are
semi-variable expenses in nature. Such
expenses are incurred on the repairs and
maintenance of vehicles and hence called
maintenance charges.
Example:
Repairs, Maintenance, Cost of tyres and
tubes, Spares, Cleaning, Painting, Accessories,
Overhauling, etc.
PORFORMA OF OPERATING/SERVICE COST SHEET
Particulars Rs. Rs.
I. Running costs (variable expenses) (1) Cost of petrol/Diesel/Oil (2) Cost of Grease (3) Drivers wages (4) Conductors wages (5) Cleaners wages
II. Maintenance costs (semi-variable
Expenses) (1) Repairs and Maintenance (2) Garage Rent (3) Cost of tyres
III. Fixed costs (Fixed Expenses)
(1) License fees (2) Taxes (3) Depreciation (4) Insurance (5) Clerical staff salary (6) Interest
Total cost
XX XX XX XX XX
XX XX XX
XX XX XX XX XX XX
XXXX XXXX XXXX
XXXX
2) CANTEEN COSTING:
Hotels, Motels, Restaurants,
Hotel mess, cafeterias, Food Parlours, eating joints,
etc. employ operating/service costing. In these
organizations, service costing ascertains the total
cost of running a canteen and cost per unit of
service. The total cost is used to determine cost per
cup of coffee/tea, cost per meal, cost per dish, cost
per consumer order.
a) Variable charges:
Variable costs vary directly with
the activity level.
Example:
Vegetables, Jam, Butter, Bread, Milk,
Tea, Coffee, Biscuits, etc.
b) Fixed costs:
A fixed cost is a cost which
remains constant and does not vary due to
change in the activity level.
Example:
Salary of cooks, salary of helpers, salary
of cleaners, depreciation, rent, insurance,
etc.
c) Semi-variable costs:
Direct proportion such costs
varies but not in to the activity level.
Example:
Lighting, gas, stream, electricity, etc.
3) Power Houses/Boiler Houses
costing:
Boiler and power house
Undertakings are engaged in providing
services to the production department. A
power house generates electricity while a
boiler house produces steam which is then
used for the generation of power, air
conditioning and air compression.
A) Variable cost:
Variable cost varies directly with
the activity level.
Example:
Fuel, power, coal, oil, water charges,
labour charges of coal handlers, ash removers,
stokers etc.
b) Fixed cost:
Fixed costs are the fixed
overhead which remain constant and does not
change due to change in the activity level.
Example:
Rent, rates, depreciation of plant,
insurance, depreciation of building, interest on
capital, etc.
c) Semi-variable costs:
Semi-variable costs are also
termed as maintenance charges.
Example:
Boilers, meters, furnaces, service
materials, coal bunkers, tools and
accessories, supervision charges, etc.
Operating costing is exclusively used in
service industry. One of the unique features of
the products of service industry is that it is
intangible. Operating costing is used in the
following areas: Passenger transport, goods
transport, electricity company, hospitals etc.
Areas of applicability Selection of cost units (1) Passenger
transport (2) Goods
transport (3) Restaurants (4) Electricity
company (5) Hospitals
(6) Hotels (7) Coaching
classes
Cost per passenger per kilometer. Cost per tone per kilometer. Cost per dish. Cost per kilowatts. Cost per patient/per bed/per operation. Cost per guest/per room. Cost per student.
Service or operating costing is a method
of determining the costs of providing and
operating a service.
In operating costing all costs are divided
into three broad categories.
They are:
1) Operating and Running costs: In this category all the variable
expenses are included.
2) Maintenance costs:
In this category all the semi-
variable expenses are included.
3) Standing or Fixed costs: In this category all the fixed
expenses are included.
ILLUSTRATIONS:
Q1] A transport service company is running four buses
between two towns which are 50 miles apart. The seating
capacity of each bus is 40 passengers. The following
particulars were obtained from their books for April, 2008:
Rs. Wages of drivers, conductors, and cleaners Salaries of office and supervisory staff Diesel oil and other materials Repairs and maintenance Taxation, insurance, etc Depreciation Interest and other charges
2,400 1,000 4,000
800 1,600 2,600 2,000
14,400
Actual passengers carried were 75% of the seating
capacity. All the four buses ran on all the days of the month.
Each bus made is round trip per day.
Find out the cost per passenger mile.
Operating cost statement
costs Per month (Rs.)
(I)Fixed cost: Salaries of office staff Taxes and insurance Interest and other charges (A) (II)Maintenance cost: Repairs and maintenance
(B)
(III)Operating and running cost: Conductors, cleaners and drivers wages Diesel, oil and other material Depreciation (C) Total cost (A+B+C) Cost per Km = 14,400 = 3,60,000
1,000 1,600 2,000
4,600
800
800
2,400 4,000 2,600
9,000
14,400
0.04
Working note:
Kilometers run
50 x 40 x 2 x 1 x 30 x 75/100 x 4= 3, 60,000Kms.
SOLUTION:
Q2] from the following relating to two different vehicles A
and B, compute the cost of the running kilometers.
particulars Vehicle A (Rs.)
Vehicle B (Rs.)
Kilometer run (Annual) Tones/km.(Average) Cost of vehicle Road license (Annual) Insurance (Annual) Garage rent (Annual) Supervision and salaries Driver’s wages per hour Cost of fuel per litre Kilometers run per litre Repairs and maintenance/km Tyre allocation/km Estimated life of the vehicle (kms.)
15,000 6 25,000 750 700 900 2,700 3 3 20 1.65 0.80 1,00,000
6,000 4 15,000 750 400 500 2,700 3 3 15 2.00 0.60 75,000
Charge interest at 5% per annum on the cost of
vehicles. The vehicles run 20 kms per hour on an average.
Computation of the Cost per running kilometer
costs Vehicle A (Rs.)
Vehicle B (Rs.)
Kilometer run (Annual) (I)Fixed cost: Road license Insurance Garage rent Supervision and salaries Interest @ 5 percent *Fixed Cost (per km.) (A) (II) Running cost (per km.):
Driver’s wages (per hour @ Rs.3 for 20 kms)
Cost of petrol (per litre @ Rs.3 For 20 Kms.)[3/20;3/15]
Repairs and maintenance Tyre Depreciation Running cost per km. (B) Total cost of running km. (A+B)
15,000
750 700 900
2,700 1,250
6,300
0.42
0.15
0.15
1.65 0.80 0.25
3.00
3.42
6,000
750 400 500
2,700 750
5,100
0.85
0.15
0.20
2.00 0.60 0.20
3.15
4.00
SOLUTION:
Working note:
Fixed cost per km.
A B
6,300/15,000 5,100/6,000
=0.42 =0.85
Q3] Mr. Shyamsunder owns a fleet of taxies and the
following information are available from the records
maintained by him:
Number of taxis Cost of each taxi Salary of manager Salary of accountant Salary of cleaner Salary of mechanic Garage rent Annual tax Drivers wages Annual repairs
10 Rs.54,600 Rs.7,000 p.m. Rs.5,000 p.m. Rs.200 p.m. Rs.400 p.m. Rs.600 p.m. Rs.900 per taxi Rs.350 p.m. per taxi Rs.1,000 per taxi
Total life of a taxi is about 2, 00,000 kms. A taxi runs in
all 3,000 kms. In a month and 30% of this distance has to be
run without any passenger. Petrol consumption is one litre for
every 10 kms @ Rs.404 per litre. Oil and other sundries are Rs.
10.50 per 100 kms.
Calculate the cost of running a taxi per effective km.
Operating cost statement of a Taxi for a month
particulars Rs. (I)Running cost: 1. Drivers wages 2. cost of petrol 3. cost of Oil and other sundries Total running cost (A) (II) Maintenance cost:
1. Cleaners salary 2. Mechanics salary 3. Garage rent 4. Repairs
Total Maintenance cost (B) (III)Fixed cost:
1. Salary of manager 2. Salary of Accountant 3. Taxes 4. Depreciation
Total Fixed cost (C) Total cost (A+B+C) Cost per Effective km = _ Total cost__ Effective kms
350 1,323 315
1,988
20 40 60 83
203
700 500 75 819
2,094
4,285
= 4,285 2,100 =Rs.2.04
SOLUTION:
Effective km. =100%-30% without any passenger
=70%
=3,000 x 70%
=2,100 kms.
Working note:
(1) Cost of petrol
Mileage 3,000 kms
Consumption 1 litre for 10 kms
Rate 4.41
Cost 3,000 x 4.41
10
=1,323
(2) Depreciation
Cost per Taxi 54,600
Estimated life 2, 00,000 kms
Mileage 3,000 kms
Depreciation 54,600__ x 3,000
2, 00,000
=819