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ervice Costing

Unit costing is the method of costing used when the cost units are identical. Identical cost units shouldhave identical costs and this concept of equality of costs is the basic feature of unit costing.

It may be noted that process costs, output costing and service costing are the sub-divisions of unit

costing method.

Service Costing Nature and Problem:

Service or operating cost is the cost of providing services. Service costing is the term applied todescribe the system used to find the cost of performing a service such as transport, gas or electricity.Service costs are particularly suitable for the costing of road and rail transport services an they are alsoutilized by electricity undertaking, hospitals, canteen, boiler house, etc. the method of costing isdifferent from that used in connection with production, and the difference lies chiefly in the manner of

assembling the cost data and finally in its allocation to cost units. The principle of service or operatingcosting is to accumulate costs under suitable headings and to express them in terms of the unit ofservice rendered.

Service Costing In Different Undertakings:

Service costing is similar to output costing. All costs are suitably classified under fixed and variable.

These costs are then collected, analyzed and expressed in terms of an appropriate cost unit. Theclassification of costs into fixed and variable is very important, as it draws managements attention tothe fixed costs to which they are committed regardless of the units of service ultimately given. It alsoindicates the change in the cost structure due to change in the operating level.

Transport Costing:

In transport undertakings most of the statistical data required for cost finding and cost control purposes

are obtained from Daily Log Report.

All repairing and maintenance work are recorded on repair tickets and are then costed.

In order to prepare a Transport Cost Sheet for a transport undertaking the costs may be subdivided asunder:-

a) Wages and running costs: - These include cost of petrol, oil, grease, wages of assistants and drivers,etc.b) Maintenance charges: - These include repairs and overhauling of vehicles, garage charges, tyres, etc.

c) Fixed charges: - These fixed expenses include insurance, license, depreciation, etc.

The statistical data regarding costs, maintenance and performance are helpful in preparing a

performance in respect of each vehicle.In order to compare the operating efficiency for each period, the total costs thus arrived at are divided by

the bases such as number of hours or days, number of kilometers run, number of commercial ton-kilometers, etc. Costs per unit thus obtained are compared with the past result. A monthly Vehicle Cost

Sheet and Performance Statement are generally used in many transport undertakings.

Cost control is always possible by means of comparison of actual performance with the budgetedperformance. Various control measures, viz., securing the optimum use of vehicles, regular maintenanceas a planned operation, avoidance of loading and unloading delays prevention of overlapping andduplicated journeys, planned replacement of vehicles, etc., may be instituted.

Where transport department is treated as service department all costs are collected and apportioned toother departments on the basis of commercial ton-kms. The haulage of incoming material might becharged as an addition to cost of raw material, and the haulage of fabricated goods to customers becomesa part of distribution overhead.

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Generally, commercial ton-km, is obtained by multiplying the total tonnage carried by the kilometerstraveled and dividing the product by two. This is done where the vehicles return empty as is found in mostcases.

Industrial Visit to Adhunik Transport Organization Limited

Introduction:

The visit was made to Adhunik Transport Organization Limited. The company was established in the year1988 as an organization. In 1991, it got the status of a limited company after reaching the minimumturnover level. The company currently has a turnover of approximately Rs. 10 Crores. The company is amember of Bombay Goods Transport Association (BGTA) AND Indian Bank Association (IBA), which is veryessential for the smooth conduct of their business activities. BGTA checks all business malpractices andIBA is needed for regulating payments within different states. The company has its 17 branches all over

the country, along with 3 agencies in certain remote areas. The company also provides warehousingfacilities to companies like Philips-India and Colgate. The company is involved in delivery of goods all overthe country.

Number of vehicles:

The company has owned as well as dedicated trucks and trailers.

Owned Vehicles8 HCVs- Heavy Commercial Vehicles4 Trailers

Dedicated Vehicles

25 LCVs- Light Commercial Vehicles

Dedicated Vehicles are delivery trucks, which are made according to certain specifications, operated underthe name of another company for which they give a minimum amount of business and certain runningcosts are borne by that company.

The company has its LCVs dedicated to ELBEE Delivery Services. They are used for delivering goods given

by ELBEE. The driver charges and maintenance charges are borne by Adhunik Transport. Other expensesare borne by Elbee. The advantage to Elbee is that its capital is not blocked. The advantage to the

company is that it does not have to look for customers and keeps getting a minimum amount of business.

No. of Employees:

The company has on an average 8 office staff members per branch. There are 30 staff members in thehead office in Mumbai. The salaries of these employees vary from Rs. 2,000- Rs. 10,000 depending uponthe nature of the job they do.

Measurement of Materials is done in tons.

COSTS:

FIXED COSTS

Salaries 54,00,000

Insurance 8,00,000

Transport Permits (Every 5 yrs) 1,00,000

Administrative Overheads 2,11,00,000

Taxes

Depreciation 30,00,000

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Interests 34,00,000

TOTAL 3,38,00,000

VARIABLE COSTSMaintenance (Per Vehicle)

HCV 10,000

LCV 6,000

TRAILERS 15,000

Wages

Drivers 2,000

Cleaners 1,200

Transit Expenses 500-1,500

TOTAL 35,000

Approx

Notes:

There are 2 drivers and 1 cleaner for every long journey. In case of short journeys, there is only 1 driver and 1 cleaner. The maximum distance covered in a day is 300kms. The average distance covered 225-280kms.

THE CUSTOMERS ARE CHARGED:

Rs. 1.20 PER KM PER TON (For HVC)Rs. 1.00 PER KM PER TON (For LVC)

The Profit-Margin is between 10%-20%.Contents

- What is Service Costing?- What is Transport Costing?

- Industrial Visit to Adhunik Transport Organization Limited

- Industrial Visit to Chawla Transport

- Letter of Visits

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