UNIT 3 OPERATING COSTING.pptx

Operating costs

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: Cost ascertainment Price fixation Quotations Decision data Control over maintenance Operational efficiency

6. BENEFITS OR ADVANTAGES OF OPERATING COSTING IN TRANSPORT ORGANISATIONS: Reliable prices Cost recovery Cost control Policy decisions Logistics COSTING PROCEDURE IN TRANSPORT COSTING : Classification of costs Fixed or Standing charges B) Semi Variable or Maintanence Charges C) Variable or Running or Operating charges Accumulation or Collection of costs 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. 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

9. 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