11cma-service or operating costing

-:: Learning Objectives ::-1. Understand the Meaning of Operating or Service Costing.

2. Ascertain the Cost per unit of Service Costing.

3. Identify the Cost data with respect to Operating Cost.

4. Compute Cost relating to different types of Industries

using Operating Costing or Service Costing such as

Transport Costing

Canteen Costing

Power House Costing

Hospital Costing

Definition of Service CostingCIMA (Chartered Institute of Management

Accountants) defines Service Costing as

“Cost accounting for Services or Functions ( e.g. Canteen, Maintenance, Personnel ). These may be referred to as Service Centers, Departments or Functions”

Features of Service Costing1. Cost Classification::- Costs are classified into Variable or

Fixed.

2. Periodical ascertainment of Costs::- Cost ascertained periodically, generally

at the end of specific periods.

3. Cost Differs ::- As service organizations provide a wide

variety of services, it is difficult to provide a common cost units. It differs from organization to organization.

Applications of Service CostingService Organizations Internal Services

Organizations that are engaged in the business of rendering service to outsiders to earn profit are called Service Organizations.

Example:- Power Generation Transport Firms Hotels

Departments within organizations render services to the production as well as other departments.

Example:- Hospitals Canteen Boiler- House

Cost Units ::-Nature of Business Cost Unit

Goods Transport Per Tonne – Kilometer

Passenger Transport Per Passenger – Kilometer

Hotels Per Room

Canteens Per Meal

Hospitals Per Patients Day

Electricity Supply Per Kilowatt Hour

Water Supply Per 1000 gallons

Road Lighting Per Lamp

Educational Institutes Per Full time Students

Special Terminologies Used In Service Costing

Fixed or Standing Charges.

Variable or Running Charges.

Semi-Fixed or Maintenance

Charges

Which are related to period and these are to be incurred whether service is provided or not.

E.g.- Insurance ChargesTaxesGarage rentOffice expenses

these charges relates to use of machine . More the use more the expenses, Lesser the use lesser are the expenses.

E.g. – Petrol, Diesel, Electricity , Wages of Drivers , Depreciation etc.

all the expenses which are incurred to keep the machine or vehicle or the establishments etc in a proper order or in working condition.

E.g. – Repair, Oiling, Replacement of Tyres or tubes etc

Objectives of a Transport CostingTo ascertain the Operating cost of running a

vehicle per Km or Mile.

To fix the rates of carriage of goods or passengers on the basis of operating cost.

To fix the hire charges where vehicles are given on hire.

To compare the cost of using own vehicle with that of using alternative mode of transport.

To determine what should be charged to departments which use internal transport facility.

The Proforma operating Cost Sheet of a Transport Company

Particulars of Expenditure

Per Unit Rs. Rs.

( A ) Fixed CostsManager’s Salary

Accountant’s SalaryDriver’s Salary

Cleaner’s SalaryGarage mechanic Salary

Administrative OverheadsGarage Rent

Insurance PremiumRoad Tax & Permit Fee

DepreciationInterest

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

TOTAL ( A ) XXX XXX

The Proforma operating Cost Sheet of a Transport Company (Cont.)

Particulars of Expenditure

Per Unit Rs. Rs.

( B ) Running Expenses

Petrol / DieselLubricating oil and other Sundries

Tyres and TubesSpares

Repairs and MaintenanceDriver’s Wages

Cleaner’s Wages

xxxxxxxxxxxxxxxxxxXxx

xxxxxxxxxxxxxxxxxxxxx

TOTAL ( B ) XXX XXX

The Proforma operating Cost Sheet of a Transport Company (Cont.)

ABC Motor Transport Ltd.

Operating Cost Sheet for the Month of ……..

Vehicle No.: XXX No. of Trips : XXXX Distance Travelled

Particulars of Expenditure Per Unit Rs. Rs.

Total Operating Cost ( A + B )

XXXX XXXX

Example on a Transport CompanyFrom the following calculate the cost per mile of a vehicle

ParticularsRs.

Value of Vehicle 15,000

Road License for the Year 500

Insurance charge per Year 100

Garage rent per Year 600

Driver’s wages per Month 200

Cost of Petrol per litre 0.8

Example on a Transport Company cont.

From the following calculate the cost per mile of a vehicle

Ignore interest on Capital

ParticularsRs.

Miles per Litre 8

Maintenance per mile 0.2

Estimated Life 1,50,000 miles

Estimated annual mileage 6,000 miles

Example on a Transport Company cont.

Working Notes ::-

1.Depreciation p.a.= ( Rs.15,000 / 1,50,000 miles )X 6,000 miles

2.Cost of Petrol per Mile = Rs. 0.8 / 8 miles = Rs. 0.1

Particulars of Expenditure

Total Cost p.a.

Cost per Mile

( A ) Fixed Expenses

DepreciationRoad Licence FeeInsurance Charge

Garage rentDriver’s Salary

600500100600

2,400

TOTAL ( A ) 4200 0.70

Example on a Transport Company cont.

Particulars of Expenditure

Total Cost p.a.

Cost per Mile

( B ) Variable Expenses :-

Petrol

Tyre and Maintenance

0.10.2

Operating Cost of Vehicle per Mile

1.00

Canteen Costing The Expenses are generally divided into the

following Heads

Food Provision Cost

Labour & Supervision Cost

Maintenance Cost

Administration Cost

The Proforma operating Cost Sheet of Canteen FirmParticulars of Expenditure Amount Rs.

( A ) Food Provision Cost

Tea / Coffee

Biscuits

Milk

Eggs / Meat / Fish

Vegetables

Beverages

Fruits

xxx / xxx

xxx

xxx

xxx/ xxx / xxx

xxx

xxx

Xxx

TOTAL ( A ) XXX

The Proforma operating Cost Sheet of Canteen Firm (Cont.)

Particulars of Expenditure Amount Rs.

( B ) Labour & Supervision Cost

Supervisor’s Salary

Cooks Salary

Helpers Salary

Cleaners Salary

Sweepers Salary

xxx

xxx

xxx

xxx

xxx

TOTAL ( B ) XXX

The Proforma operating Cost Sheet of Canteen Firm (Cont.)

Particulars of Expenditure Amount Rs.

( C ) Maintenance Cost

Crockery / Cutlery

Cleaning Materials

Towels

Consumable Stores

Gas

xxx

xxx

xxx

xxx

xxx

TOTAL ( C ) XXX

The Proforma operating Cost Sheet of Canteen Firm (Cont.)

Particulars of Expenditure Amount Rs.

( D ) Administration Cost

Management Salaries

Rent

Insurance

Repairs and Maintenance

Other Administrative Expenses

xxx

xxx

xxx

xxx

xxx

TOTAL ( D ) XXX

The Proforma operating Cost Sheet of Canteen Firm (Cont.)

Particulars of Expenditure Amount Rs.

( I ) Total Operating Cost ( A + B + C + D )

XXX

( II ) No. of Meals Served XXX

Cost per Meal Served ( I ) / ( II )

XXXXX

Monthly Statement of Canteen Cost

Particulars of Expenditure This Month Rs.

This Month

Last Year Rs.

Material Consumed XXX XXX

Labour & Supervision Cost XXX XXX

Other Overheads XXX XXX

TOTAL COST ( A) XXXXX XXXXX

Less Thr’ Coupons ( B ) XXX XXX

Subsidiary given By Company ( C= A- B )

XXXXX XXXXX

No. of Employees Served ( D ) XXX XXX

Cost per Employee ( C ) / ( D) Rs. XX XX

Example on Canteen CostingFrom the following calculate the increase in

subsidy per Head this month in the same month last year.

ParticularsThis

Month This

Month Last Year

No. of Employees 4,000 3,500

Sales Realization thr’ Coupons

35,000 30,000

Material Consumed 50,000 30,000

Labour & Supervision 30,000 22,000

Overheads 39,000 34,000

Comparative Cost Sheet of a Canteen

Particulars This Month

This Month Last Year

Material Consumed 50,000 30,000Labour & Supervision 30,000 22,000Overheads 39,000 34,000

TOTAL COST ( A ) 1,19,000 86,000Less Sale Thr’ Coupon ( B ) 35,000 30,000Subsidy Provided by Company ( A) – ( B )

84,000 56,000

No. of Employees 4,000 3,500Subsidy for Each Employee 21 16

So increase in subsidy by company is Rs. 5 per Head

Objectives of Power House CostingTo ascertain the Operating cost of generating

Electricity.

To fix the rates of electricity to be charged to various departments using electricity.

To compare the cost of generating electricity with that of using alternative mode of generating electricity.

The Proforma operating Cost Sheet of a Power House CostingSteam Produced :- Steam Used for Generation :-Units of Electricity Generated :-

Particulars Total Cost Cost Per Unit

Current YearRs.

Previous YearRs.

Current YearRs.

Previous Year

Rs.

( A ) Steam Generation Cost

CoalLabourWater

Repairs and MaintenanceSupervision

Fixed OverheadsTotal Cost of Steam

GenerationLess :- Allocated to Heating

Cost of Steam utilized for Electricity Generation

The Proforma operating Cost Sheet of a Power House Costing

Steam Produced :- Steam Used for Generation :-Units of Electricity Generated :-

Particulars Total Cost Cost Per Unit

Current YearRs.

Previous YearRs.

Current YearRs.

Previous Year

Rs.

(B) Electricity Generation Cost

Cost of Steam UsedStoresWages

Depreciation Repairs & Maintenance

Supervision

Total Cost

The Proforma operating Cost Sheet of a Hospital Firm

Particulars of Expenditure Amount Rs.

( A ) Fixed Costs Salaries to Staff

Premises RentRepairs and Maintenance

General Administrative Expenses Cost of Oxygen , X-ray etc.

Depreciation

xxxxxxxxxxxxxxxxxx

TOTAL ( A ) xxx

The Proforma operating Cost Sheet of a Hospital Firm (Cont.)

Particulars of Expenditure Amount Rs.

( B ) Variable CostsDoctor’s Fees

FoodMedicines

Diagnostic ServicesLaundry

Hire Charges for Extra Beds

xxxxxxxxxxxxxxxxxx

TOTAL ( B ) xxx

The Proforma operating Cost Sheet of a Hospital Firm (Cont.)

Particulars of Expenditure Amount Rs.

( I ) Total Operating Cost ( A + B )

XXX

( II ) No. of Patient Days XXX

Cost per Patient Day ( I ) / ( II )

XXXXX

Quick RecapObjective of Operating or Service CostingDefinition of Operating or Service CostingCost UnitsSpecial Terminologies Used In Service Costing

as Fixed Charges ,Variable Charges, Maintenance Charges

Some of Service Industries, Objective and Proforma of Transport Costing with

ExampleCanteen Costing with

ExamplePower House CostingHospital Costing

Reference BooksCost Accounting by Jawahar Lal & Srivastava.

Cost Accounting by Ravi Kishore.

Cost Accounting by Gupta, Sharma, Ahuja.

Cost Accounting by Tulsian

Cost Accounting : Principles & Practice by

Dutta