OPERATING COSTING

PAGE 5

OPERATING COSTING IN PARTIAL FULFILMENT OF THE REQUIREMENT UNDER SEMESTER BASED CREDIT & GRADING SYSTEM FOR POST GRADUATESEMESTER IIProgram under faculty of commerce

MASTER OF COMMERCE (EVENING)

SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

SUBMITTED BY:

AKASH M TOKE

ROLL NO: 52

PROJECT GUIDE:

Prof. UTTAM KATARMAL SYDENHAM COLLEGE OF COMMERCE &

ECONOMICS 2014-2015

DECLARATION

I Mr. PRAMOD V. SHARMA the student of M.Com-I (Evening) 2ND.Semester (2014-2015), hereby declare that I have completed the project on OPERATING COSTING. The information submitted is true and original to the bestof my knowledge.Signature of student: _________________

AKASH M TOKE

Roll No: 52

CERTIFICATE

This is to certify that Mr. AKASH M TOKE of M.Com-I (Evening) Semester-II (2014-2015) has successfully completed the Project on OPERATING COSTING under the guidance of Prof. UTTAM KATARMAL1) Project Guide: ___________________

2) Internal Examiner: ________________

3) External Examiner: ________________

DATE: ____________________

PLACE: ___________________ACKNOWLEDGEMENT

I would firstly like to thank the UNIVERSITY OF MUMBAI for giving us the liberty of choosing such topic which will be benefited to us in future. I would like to thanks the Principal of Sydenham College Dr. AnnasahebKhemnar for giving me the opportunity to study in this esteemed college and doing the course of Accountancy. I would like to express my sincere gratitude and thanks to

Prof. UTTAM KATARMAL who is my project guide, as he has been the guiding light for this project and has also provided me with the best of my knowledge, advice and encouragement which helped me in successful completion of my project.

My colleagues and specially my parents who have also supported and encouraged me, the success of this project to the large extent is also dedicated to them.

I would also like to thank all those who have helped me and whom I have forgotten to mention in this space

SIGNATURE OF STUDENT: ______________1. INTRODUCTION TO OPERATING COSTINGOperating costing is a method of costing applied by undertakings which provide service rather than production of commodities. Like unit costing and process costing, operating costing is thus a form of operation costing.The emphasis under operating costing is on the ascertainment of cost of rendering services rather than on the cost of manufacturing a product. It is applied by transport companies, gas and water works, electricity supply companies, canteens, hospitals, theatres, school etc. Within an organization itself certain departments too are known as service departments which provide ancillary services to the production departments. For example: maintenance department; power house; boiler house; canteen; hospital; internal transport.Operation costing offers better scope for control. It facilitates the computation of unit operation cost at the end of each operation by dividing the total operation cost by total input units. It is the category of the basic costing method, applicable, where standardized goods or services result from a sequence of repetitive and more or less continuous operations, or processes to which costs are charged before being averaged over the units produced during the period. The two costing methods included under this head are process costing and service costing.CIMA has defined Operating Costing As that form of operation costing which applies when standardized services are provided either y an undertaking or by a service cost center within an undertaking.Cost Accounting Standard 1 by ICWA defines Operating Cost As the cost incurred in conducting a business activity. Operating costs refer to the cost of undertakings, which do not manufacture any product but which provide services. Because of the varied nature of activities carried out by the service undertaking, the cost system used is obviously different from that followed in manufacturing concerns.The essential features of operating costs are as follows:1. The operating costs can be classified under three categories. For example in the case of transport undertaking these three categories are as follows:

Operating and running charges: It includes expenses of variable nature. For example expenses on petrol, diesel, lubricating oil, and grease etc. Maintenance charges: These expenses are of semi-variable nature and include the cost of tyres and tubes, repairs and maintenance, spares and accessories, overhaul, etc. Fixed or standing charges: These includes garage rent, insurance, road license, depreciation, interest on capital, salary of operating manager, etc.0. The cost unit used is a double unit like passenger-mile; Kilowatt-hour, etc. It can be implemented in all firms of transport, airlines, bus-service, etc., and by all firms of Distribution Undertakings2. APPLICATION OF OPERATING COSTING1. Transport Service: Under this method of costing, the operating cost of each vehicle is determined. The common unit of service is ton kilometers in case of goods transport, and passenger kilometer in case of passenger transport. Examples of transport service are Truck operators, road transport, Railways, Airlines, etc.2. Supply service: It includes services like electricity, steam, gas, water, etc. where steam is used for the purpose of generating electricity, it is possible to compute the cost of electricity generated by aggregating the steam production costs with other related cost of electricity generation. A cost unit is generally in terms of kilograms.3. Welfare Services: It includes services like canteen, hospital, library, etc. Hotels, restaurants employ operating costing. The total operation of a hotel can be divided into number of cost centers like Restaurant, Housekeeping, Laundry, etc. The cost unit is generally in terms of per meal/ dish.4. Municipal Services: It includes services like road maintenance, garbage disposal, street lighting, etc.3. COST UNITFor ascertaining costs, it is necessary to decide suitable cost units for each type of service industry. Basically, Operating Costing is a type of Process Costing. Thus it uses the methods of Process Costing when ascertaining the cost of supply of electricity, steam etc. However, sometimes Operating Costing may adopt a particular Job as a unit of costs as for example when costing a particular trip by a bus so as to quote the charges. In such cases Operating Costing uses the methods of Job Costing by treating a specific trip as a separate job. A cost unit under operating costing may be of two types . Simple cost unit; or

a. Composite cost unit.

Following is the list of different cost units used in different types of service enterprises Service IndustriesSimple Cost Unit

Passenger TransportPer Kilometer

Goods TransportPer Kilometer

Road MaintenancePer K.M. of Road maintained

Water SupplyPer Kilo Liter of Water Supplied

CanteenPer Meal / Dish

Service IndustriesComposite Cost Unit

Passenger TransportPer Passenger - K.M.

Goods TransportPer Ton - K.M.

ElectricityPer Kilowatt Hour

Steam, GasPer K.G. / Cubic Ft.

HospitalPer Patient Day

LibraryPer Member Book

Thus, it can be seen that in Operating Costing, in most cases the cost unit is a compound unit. It refers to both the Quantum of Service and Period of Service. Thus a transporter charges for carrying so much weight (tons) for so much distance (Km); an electricity company charges one for use of both the Quantum (Kilowatt) and the Period (Hours); and so on.4. PROCEDURE

1) Determine cost unit: The first in operating costing is the determination of the cost unit. This is a complex task as explained in para1.3.2) Ascertain Cost: The next point to be notes is that operating cost are period cost. The cost of supplying the service for a period are ascertained in the following manner(taking the example of a transport) Vehicle No.: Each vehicle is treated as accost centre and given a specific number. All the cost account against this number. A separate account is opened to record the cost and income of each vehicle.

Variable Cost: Variable cost are the running and operating. This included expenses of variable nature e.g. petrol, diesel, lubricating oil, grease etc. the material requisition note and time sheet (or Log) bears the vehicle no. the relevant vehicle account is debited with it direct material and direct labour cost. Direct expenses such as a fuel are debited to vehicle account on the basic of log book and the cash / purchase / journal vouchers.

Fixed costs: Fixed cost (fixed charge) included garages rent, insurance, road license fees etc. the fixed charges are apportioned and absorbed by each vehicle no. on the basic of overhead absorption rate which may be actual or pre determine. The fixed cost attributable to the vehicle are debited to the relevant vehicle account.

Revenue: The revenue from the vehicle is credited to the vehicle account.

Profit or Loss: The vehicle account at this stage will reveal the profit or loss made on operating that vehicle. The profit or loss is then transfer to the costing profit and loss account the total operating cost of a period is divided by the number of cost unit (KM/Passenger/ Ton)supplied during the period to arrive at the operating cost Per unit for that period.3) No stock: In case of a service industry there is no question of any closing stock or work-in-progress since it is not possible to store a service for future use. 4) Abnormal cost: According to cost accounting standard 5 (transportation cost) abnormal and non recurring cost shall be directly debited to p&l a/c and shall not form part of operating cost. Example are penalty, detention charge demurrage and cost related to abnormal breakdown.

5. LIMITATIONSOperating Cost Accountinghas certain limitations

a) Based on estimates: Indirect costs are not charged fully to a product or process. It is charged to all the products and processes on the basis of estimates. Actual cost varies from estimated cost. Due to these limitations, all cost accounting results are taken as mere estimates.b) Lack of uniformity: Procedures ofcost accountingfollowed by different organizations are different for different products. There is no uniformity. There is also possibility of difference in pricing material issues for production. All these lead to different cost results for the same operation.c) Many conventions: There are many conventions for classification of costs, pricing of material issues, apportionment of indirect costs, adoption of marginal or standard cost, etc. These create difficulty in determiningthe exact cost, because no one type of cost is suitable for all. Purposes and in all circumstances.

d) Expensive: Cost accounting is expensive. It involves lots of clerical won for maintaining various costing records for different purposes. For medium and small size concern, the benefit derived from costing system may not justify the cost involved.e) Result requires reconciliation: Information and results provided by financial accountingand cost accounting may be different for the as activity.This requires reconciliation to find out correctness of the two before taking any decision.

f) Dependent: It is not an independent system of accounting. It depends on otheraccounting systems.

g) Does not include all items of expense and income: Items of purely financial nature such as interest, financial charges, discount and loss on issue of shares and debentures, etc. are not taken into consideration in Cost Accounting.h) Not an exact science: Like otheraccounting system, it is not an exact] science but an art that has developed through theories and practices.

6. RESEARCH METHODOLOGY

One important aspect of analyzing cost data is the challenge of how to present the findings in a manner that potential users may be able to apply to their own settings. Consequently, a key question underlying the development of this report is: who are the potential users of operating cost information and how will the information be used?

Since this analysis has been motivated by informational needs of provincial Ministries of health, the analysis below assumes that the primary users of the findings will be provincial Ministries of health and other significant purchasers of health care services, such as the B.C. Health Services Purchasing Organization (HSPO). This analysis assumes that the primary users of the methods and findings regarding operating costs of hospitalizations will be provincial Ministries of health and other significant purchasers of health care services.7. FEATURES OF OPERATING COSTING

The main features of operatingcosting are as following:-(1)The undertaking which adopts servicecostingdoes not produce any tangible goods. Theseundertakings render unique services to their customers.

(2)The expensesare divided into fixed andvariable cost. Such a classification is necessary to ascertain the cost of service andthe unit costof service.

(3)The cost unit may be simple or composite.The examplesof simple cost units are cost perunit in electricity supply, cost per liter inwater supply, cost per meal in canteen etc. Similarly cost per passengerkilometersin transport cost per patient-day in hospital, costper room-dayin hotel etc., are the examples ofcomposite cost unit.

(4)Total costare averaged over the total amount of service rendered.

(5)Costs are usually computed period-wise. However, in the case of utilization of vehicles, useof road-rollers etc., the costs are computed order wise.

(6)Servicecostingcan be used for service performed internally or externally.

(7)Documents like the daily log sheet, cost sheet etc. are used for the collection of cost data.8. ADVANTAGES & DISADVANTAGES OF OPERATING COSTING Advantages of operating costing:

1. Invest in more training for your employees.Wait-isn'tthis article aboutreducing operating expenses? Well, it is. Investing in more training for employees will reduce the number of errors that are made, which will inevitably save money for the company. Not only that, but investing more in your employees will show them that they are valued. In return, they will be more engaged and produce more (and better) work.2. Cut office supply expenses.Reducing supply expenses can significantly reduce your operating expenses and improve your bottom line. This can be done by going from paper to electronic whenever possible or ordering supplies in bulk in order to obtain discounts. In addition, if you purchase all of your supplies at the same outlet, you may be able to negotiate a better price. At the very least, shop around for lower prices and any loyalty programs offered by potential suppliers.3. Cut out travel and entertainment expenses.Although T &E expensesare considered a "perk," during tough times, these are expenses a business can do without. Instead of traveling to business meetings, hold conference calls or meetings online. Also, try not to spend funds on company outings, meals, or other entertainment.4. Rent or lease equipment as opposed to purchasing new equipment.Leasing business equipment and tools preserves capital and provides flexibility. According toNolo.com, a legal advice website, the primary advantage of leasing business equipment is that it allows businesses to acquire assets with minimal initial expenditures. In addition to this, leasing offers the benefits of improved cash flow, tax advantages, flexible terms, and the ability to easily upgrade equipment.\5. Reduce marketing and advertising expenses.Business magazineand websiteEntrepreneur.comsuggests that business owners "split advertising and promotion costs with neighboring businesses. Jointly promote a sidewalk sale, or take your marketing alliance further by sharing mailing lists, distribution channels and suppliers with businesses that sell complementary goods or services." If you are advertising via television or radio ads, look for cheaper time slots as another option.6. Reduce your staff-well, sort of.This doesn't necessarily mean completely laying off your workers. Instead, consider rehiring your workers on a contract basis as a temporary employee. This could save you money on salary expenses as well as

Employee benefits until the business gets back on track and is able to rehire workers on a permanent basis.7.Outsource administrative functions.Consideroutsourcingfunctions such as your accounting and payroll to help reduce your business expenses. This will give you more time to focus on building your business and costing projects, while possibly reducing the expense of these functions if you are able to outsource them for cheaper than performing them within your business.

While cutting expenses may seem like something to do temporarily to maintain your business, actually implementing these ideas when revenues are increasing will continue to help your business generate the most profitability possible. Disadvantages of operating costing:

Start-up businesses are typically more costly and risky since there is no proven formula.

In order to obtain capital to fund the business, a lengthy detailed business plan must be put together.

All of the details of starting the business, including licenses, marketing, naming the business, finding product sources, etc. are the responsibility of the owner

9. COST ANALYSISThe costs incurred in departments rendering services or service organizations are grouped under the following heads:

1. Fixed or standard charges

2. Semi-fixed or maintenance charges

3. Variable or running charges

To ascertain the cost per unit, these charges are aggregated and divided by the number of service units during the specified period.

Cost per unit = Total cost during the period

Number of service unit during the periodDetermination of cost per unit serves the following purposes:

1. It is used for price fixation.

2. It is used for cost control. 10. HOSPITAL COSTING

A concern of most countries is health sector resources: the sources of finance for health services, the ability to maintain past funding levels, resource allocation patterns, and the efficiency of health services delivery. The hospitals of these countries are an important element of the concern about health resources because they are the largest and most costly operational unit of these health systems and account for a large portion of the health sector's financial, human, and capital resources. In aggregate terms, hospitals utilize nearly half of the total national expenditure for the health sector; hospitals commonly account for 50 to 80 percent of government recurrent health sector expenditure: hospitals use a large proportion of the most highly trained health personnelA hospital is engaged in providing various types of medical services to the patients.Hospital costing is applied to decide the cost of these services. A hospital may have following departments for providing various types of services:1. Outdoor Patient Department. (O.P.D)0. Indoor Patient Department (Medical Wards).0. Medical Services Department: X Ray Department, Scanning Centre, Pathology Laboratory, Sonography Department. 0. General Services Departments: Bolier House, Power House, Catering department, Laundry Room, Administrative Department,0. Miscellaneous Services Departments: Transport Department, Dispensary Department, General Porting Department.Unit of Cost:

The common units of costs of various departments in a hospital are as follows:DepartmentUnit of Cost

1. Outdoor Patient DepartmentPer out-patient

2. Indoor Patient Departmentper Room-day

3. X Ray DepartmentPer 100 units

4. Scanning centreper case

5. Pathology Laboratoryper 100 Requests

6. Laundry DepartmentPer 100 items laundered

7. Catering DepartmentPer Patient per week

The cost of hospital is divided into fixed and variable costs. Fixed costs include staff salaries, depreciations of building, rent of building whereas variable cost include light and power, water, laundry charges, food supplied to patients etc.Why are hospital costs important?Hospital cost information is derived by relating the inputs of resources in monetary terms to the outputs of services provided by the hospital. Cost information is part of the basic information needed by managers and policy makers for making decisions about how to improve the performance of a hospital, where to allocate the resources within or among hospitals, or to compare the performance of different hospitals to one another. Some of the Basic reasons for wanting cost information are to improve efficiency, increase effectiveness, enhance sustainability, and improve quality.How does one do a hospital costing exercise?The process of determining the costs of a hospital involves six steps:1. Defining the major and relevant activity areas of the hospital.2. Gathering information on the services provided or the output of the hospital.3. Determining the labor and other recurrent costs.4. Ascertaining the capital costs of the hospital.5. Allocating indirect costs.6. Reviewing and using the hospital cost summary.COST SHEET FOR MONTH/YEARA.BC.D.E.FIXED STANDING COSTSSalaries to staff .Premises Rent .Repairs and maintenance .General administration Expenses .Cost of Oxygen, X-Ray, etc. .Depreciation ...RUNNING OR VARIABLE COSTSDoctors fees Food Medicines Diagnostic Services Laundry ...Hire charges for Extra Beds ..TOTAL OPERATING COSTNO. OF PATIENTS DAYSCOST PER PATIENT DAY (C)+(D)

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10.1 CASE STUDY:-

PROJECT COST OF TT HOSPITAL, GOLDEN TEMPLE

This is a brief description of the project cost of the TT Hospital, Golden Temple to provide the basic healthcare facility for the monks and nuns of Namdroling Monastery and for the local population. The hospital basically needs the minimum infrastructure which can be categorized in departments as follows:

1. Casualty/Emergency

2. Clinical laboratory

3. Radiography

4. Dialysis

5. Operation Theatre (for minor procedures only)

The costing of each department based on the equipments needed is summarized and the total cost for this project is quoted at the end.1. EMERGENCY DEPARTMENT

The equipments needed for the emergency department as well as in-patient wards are:

1) Pulse Oximeter

2) Syringe Pump

3) Infusion Pump

4) ECG

5) Cautry

6) Multiparameter Monitor

7) Defibrillator

The total costs of these equipments is summed up to 24, 51,060 INR (Twenty four lakhs, fifty one thousand and sixty Indian rupees)2. CLINICAL LABORATORY

The equipments needed for basic investigations and also life-saving investigations are:

1) Auto analyzer (Analysizes serum, plasma, urine, CSF, Hemolysate)

2) ABG Machine or Analyzer (Arterial blood gas analyzer)

The total cost of these equipments is summed up to 22, 00,000 INR (Twenty-two lakh Indian Rupees)3. RADIOGRAPHY

An X-ray machine (HF Advantage 32KW with FTT) needs to be purchased to replace the present old X-ray which is damaged. The total cost of this is 10, 07,500 INR (Ten lakh seven thousand five hundred Indian Rupees)4. DIALYSIS

The hospital needs four dialysis machines of which two are needed in first stage and the cost of the dialysis machine is 8,50,000 INR (Eight lakh fifty thousand Indian Rupees) for each machine. Total cost will be summed up to 17, 00,000 INR (Seventeen lakh Indian Rupees)5. OPERATION THEATRE

To conduct minor procedures which can be operated without risk, an operation theatre with the following equipments should be furnished.

1) OT Table

2) OT light

3) Suction Machine

4) Anesthesia Machine

5) Autoclave

6) Fumigator

7) Instruments for minor procedures

The cost of the above equipments amounts to 9, 78,000 INR (Nine lakh seventy-eight thousand Indian Rupees)Summary:

Cost in INR

1. Casualty/Emergency

24, 51,060

2. Clinical laboratory

22, 00,000

3. Radiography

10, 07,500

4. Dialysis

17, 00,000

5. Operation Theatre (for minor procedures only)

9, 78,000

Total cost of the project:

83, 36,560

(Eighty three lakhs, thirty six thousand five hundred and sixty Indian Rupees)

Prepared on 16th March 2010 by Dr. Ananthu, Lopon Sonam Dendup and Lopon Sonam Tsewang

ESTIMATION OF THE OPERATING COST OF THE HOSPITAL

MONTHLY REPORTSALARIES PER MONTHMEDICAL STAFF

Sl.No.DesignationsNos.Salary per person Total Salary in Indian Rupees

1Medical Superintendent 135,00035,000

2Resident Doctor220,00040,000

3Nursing Supervisor120,00020,000

4Dialysis Staff Nurse210,00020,000

5Staff Nurses107,00070,000

6Dialysis Technician19,0009,000

7Lab Technician26,00012,000

8Pharmacist16,0006,000

TOTAL2,12,000

NON-MEDICAL STAFF

Sl.NoDesignationsNos.Salary per personTotal Salary in INR

1Supervisor18,0008,000

2Accountant18,0008,000

3Receptionist35,00015,000

4Driver14,0004,000

5Ward Boys43,00012,000

6Security Guard14,0004,000

7House Keeping33,0009,000

8Secretary18,0008,000

TOTAL68,000

OTHER EXPENSES

Sl.No.LISTEXPENSES IN INR

1AMBULANCE MAINTENANCE15,000

2ELECTRICTY15,000

3GENERATOR10,000

4STATIONERIES5,000

5STAFF WELFARE10,000

6MISCELLANEOUS4,000

TOTAL59,000

GRAND TOTAL OF MONTHLY OPERATING EXPENSES: 3, 39,000 (Three Lakhs thirty-nine thousand Indian Rupees)Prepared on 16th March 2010 by Dr. Ananthu, Lopon Sonam Dendup and Lopon Sonam Tsewang

Contact Details:

Tsepal Tobkyed Hospital

Golden Temple, Namdroling Monastery

P.O.Bylakuppe - 571104

Mysore District, Karnataka, South India

Phone No.: +91 8223 258445 (Reception)

TT Hospital Email ID: tthospital2010@gmail.com

Lopon Sonam Dendup, Chief Administrator- email id: sonamlambu@yahoo.com

Mobile No.: +91-9980001072

Lopon Sonam Tsewang, Chief Business Development Office - email id: sonamvarna@gmail.com

Mobile No.: +91- 9741517597

Dr. Ananthu S. Chief of Medical Services - email id: ananthuvishnu@yahoo.com

Mobile No.: +91-9886803169

10.2- Illustrations 1:Apollo Hospital runs an Intensive Care Unit in a hired building at a rent of Rs. 7500 p.m. The Hospital has undertaken to bear the cost of repairs and maintenance.The Intensive Care Unit consists of 35 beds and 5 more beds can be conveniently accommodated whenever required. The permanent staff attached to the unit is as follows:2 Supervisors, each at a salary of Rs. 2500 p.m., 4 Nurses each at a salary of Rs. 2000 p.m., 4 Ward boys each at a salary of Rs.500 p.m.Though the unit was open for the patients all the 365 days in a year but it was found that only 150 days in a year, the unit has the full capacity of 35 patients per day and for another 80 days it had on an average 25 beds only occupied per day. But there were occasions when the beds were full, extra beds were hired from outside at a charge of Rs. 10 per bed per day. This did not come to more than 5 beds extra above the normal capacity any one day. The total hire charges for the extra beds incurred for the whole year amounted to Rs. 7500.The unit engaged expert doctors from outside to attend on the patients and fees were paid on the basis of the number of patients attended and time spent by them on an average worked out to Rs.25000 per month in the year 2003.The other expenses for the year were as under:

Repairs and Maintenance (Fixed) Rs. 8100Food supplied to patients (Variable) Rs. 88000Janitor and Others Services for patients (Variable) Rs. 30000Laundry Charges for their bed linen (Variable) Rs.60000Medicines supplied (Variable) Rs. 75000Cost Oxygen, X Ray, etc., other Than directly borne for treatment of patients (Fixed) Rs. 108000 General Administration Charges allocatedTo the unit (Fixed) Rs. 1000001. Calculate the profit per patient day made by the unit in the year 2003 if the unit recovered on the overall amount of Rs. 200 per day on an average from each patient.0. The unit wants to work on a budget for the year 2004, but the number of patients requiring intensive care is a very uncertain factory.Assuming that same revenue and expenses prevail in 2004 in the first instance, work out the number of patients days required by the unit to break-even.Solution:

Calculation of No. of Patients days:

35 beds * 150 days = 5250

25 beds * 80 days = 2000

Extra bed days 7500 / 10 = 750 8000STATEMENT OF COSTParticularsRsRs

1. Income Received (Rs. 200 * 8000 Patient days)1600000

2. Variable Costs (Marginal Costs) Per Annum:

Food 88000

Janitor charges30000

Laundry Charges60000

Medicines supplied 75000

Doctors Fees (25000 *12)300000

Hire Charges for extra beds7500560500

Contribution1039500

3. Fixed costs

a. Salaries:

Supervisors (2 * 2500 * 12)

Nurses (4 * 2000 *12)

Ward Boys (4 * 500 * 12)60000

96000

24000

b. Rent (7500 *12)90000

c. Repairs and Maintenance8100

d. Cost and oxygen etc.108000

e. General Administration100000486100

553400

Profit per Patient-day = 553400 / 8000 patients days= Rs. 69.175Break even Point =Fixed Cost / Contribution * Income486100 / 1039500 * 1600000= Rs. 748206Break-even Point for Patient-days = 782206 / 200= 3741 patients-days.10.3- Illustrations 2:Care Hospital operates a fitness center to provide counseling on nutrition, exercise and health care for major surgery patients after their release from the hospital. Average patient will make three visits to the center. Each visit lasts 40 minutes.The hospital has estimated the following costs of operating the center:Particulars Amt

Occupancy costs per monthClerical costs per month Other costs per monthMedication charges per patientRecords charge per patientStaffing cost per visitComputer record update per visit18000120004000441693

Hospital expects to have an average of 500 visits per month. What should be the amount charged to each patient in order to cover the above costs? Solution:ParticularsAmt

Indirect cost per month

OccupancyClericalOther costs. Indirect costs per visit ( 34000/500)Staffing cost per visitComputer record update per visitTotal costs per visitVisits per patientB. Total cost per patient Records charge per patientMedication change per patientC. Total average cost per patientD. Or per patient (60+80) per visit18000

12000400034006893____803____2401644____300

11. TRANSPORT COSTING

Transport operating costsrefer to costs that vary with vehicle usage, including fuel, tires, maintenance, repairs, and mileage-dependent depreciation costs (Booz Allen & Hamilton, 1999).Projects that alter vehicle miles traveled, traffic speed and delay, roadway surfaces, or roadway geometry may affect travelers' vehicle operating costs, which should be considered in a benefit-cost analysis.Vehicle ownership costsrefer to fixed costs that are not directly affected by vehicle mileage, including time-dependent depreciation,insurance and registration fees,financing, and residential parking. Projects that change per capita vehicle ownership rates, such as significant changes in the quality of alternative modes and land use accessibility, may affect vehicle ownership costs, which should be considered in benefit-cost analysis. Estimate changes in total vehicle miles traveled along a corridor. Estimate changes in vehicle travel speeds and delay due to road and traffic conditions. Estimate fuel consumption rates, fuel prices, and non-fuel-related operating costs. Calculate total changes in vehicle operating costs. For improvements to ride quality, such as pothole repairs and curve or grade reductions, estimate effects on vehicle wear. Estimate changes in per capita vehicle ownership in an area. Estimate average vehicle ownership costs. Calculate total changes in vehicle ownership costs.COST SHEET for (Month/Year)

STEPCOSTSRs.Rs.

A.BC.D.E.FIXED COSTInsurance .License fee, Permit fee and Taxes ..... Depreciation .Other Fixed costs (specify) VARIABLE COSTSalaries and Wages of Drivers, Cleaners & other Operating Staff Fuel and Lubricants ..Consumables Amortization Cost of Tyre ,Tube & Battery Laundry Spares ...Repairs & Maintainable Other Variable Cost (specify) ...TOTAL OPERATING COST[A+B]PROFIT/LOSSREVENUE [TAKINGS]

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VEHICAL NO XXXCARRAIGE CAPACITY [Seats or Tonnes] XXXDAYS OPERATED XXX11.1- Illustrations 1:1. From the following information calculate total kms and total passengers KmsNo. of Buses=6Days Operated in the month=25Trips mage by each bus = 4Distance of route 20 Kms (one way)Capacity of Bus = 40 passengers Normal passenger travelling 90% of capacity.Solution:Total Kms covered = RunDistance * Two ways * No. of trips * No. of days * No. of buses20 Kms * 2 * 4 *25 * 6 = 24000 KmsTotal passenger-Kms. Covered = Run * LoadLoad = Maximum capacity* Used capacity= 40 * 90% = 36Total Passenger Kms Covered = 24000*36 = 86400011.2- Illustrations 2:A mineral is transported from two mines A and B and uploaded at plots in a Railway station. Mine A is at a distance of 10kms, and B is at a distance of 15kms. From railhead plots. A fleet of lorries of 5 tonne carrying capacity is used for the transport of mineral from the mines. Records reveal that the lorries average a speed of 30kms per hour , when running and regularly take 10 minutes to unload at the railhead. At mine A loading time averages 30 minutes per load while at mine B loading time averages 20 minutes per load.Drivers wages, depreciation, insurance and taxes are found to coat Rs9 per hour operated. Fuel, oil, tyres, repairs and maintainance cost Rs 1.20 per Km.Draw up a statement, showing the cost per tone- kilometer of carrying mineral from each mine.Assuming the quality and other aspects pertaining to material is same in both the mines, where should the material be purchased?Solution:1. Operating analysis Particulars AB

. Total kms operatedI. Total operating time. Time from plot to mine(10*60/30) , (15*60/30)b. Loading timec. Time from mine to plot(10*60/30) , (15*60/30)d. Unloading time III. Effective tone kilometer(5*10km) , (5*15km)20km20mins30mins20mins10mins80mins50tonn-km30km30mins20mins30mins10mins90mins75tonn-km

0. Statement showing the cost per tone kilometer of carrying Mineral from each mineCosts Mine AMine B

(Drivers wages , depreciation , insurance & taxes)A: 1hour 20minutes @ Rs9 per hourB: 1hour 30minutes @ Rs9 per hour(refer to working note 1)(Fuel, oil , tyres , repairs and maintainance)A: 20kms @ Rs1.20 per kmB: 30kms @ Rs1.20 per kmTotal cost per trip

12243613.5036.0049.50

Cost per ton-km = Total cost / Total ton-km

A = 36/50 = Rs 0.72B = 49.5/ 75 = Rs 0.66cost per tone

= Total cost \ Total tonesA= 36/5 = Rs 7.2B = 49.5/5 = Rs 9.9

Since the cost per tone is the lowest in case material is procure from mine A it will be considered11.3- Illustrations 3: A truck starts with a load of 10 tonnes of goods from station P. It unloads 4 tonnes at station Q and rest of the goods at station R. It reaches back directly to station P after getting reloaded with 8 tonnes of goods at station R. The distance between P to Q to R and then R to P is 40 Kms, 60 Kms and 80 Kms respectively. Compute1. Absolute Tonnes-Kilometers2. Commercial Tonnes-KilometersSolution:Absolute Tonnes- Kilometer Q

INCLUDEPICTURE "https://docs.google.com/drawings/d/sHrI4Sn2qPAkg-o7s3ecDMQ/image?w=97&h=79&rev=1&ac=1" \* MERGEFORMATINET R40km 60km

P

80km= (10 ton*40km) + (6 ton*60km) + (8 ton*80kms) = 1400Commercial Tonnes Kilometer= Average Load * Kilometers Travelled = 10 + 6 + 8/3 Tonnes * 180 km= 1440 Tonnes Kms13. CONCLUSION

Operating costs are expenses that relate to a business operations. It can also refer to the costs of operating a specific device or branch of acorporation. These costs usually fall into two categories, calledfixed costsand variable costs, and a business may have more of one type than the other.

Fixed operating costsare expenses that tend to remain the same whether the business or device is inactive or operating at full capacity. Examples of such expenses include employee salaries and machinery leasing fees. Salaries must be differentiated from hourly wages in this regard.

Flexible expenditures are known as variable operating costs. These expenses fluctuate based on a variety of factors. Money dispensed on hourly wages, for example, can be adjusted by varying the amount of time recipients are engaged in labor.

Operating costs are not unique to any country, although actual expenses may vary from one country to another or even from one location to another. Within an industry, it is very possible for expenses to vary. It is, however, difficult to find a business that does not have any of these costs. Even Internet businesses, in which the costs of operations can often be reduced, it is almost impossible to completely eliminate them.

Process costing method is applicable where goods or services result from a sequence of continuous or repetitive operations or processes and products are identical and cannot be segregated. Costs are charged to processes and averaged over the units produced during the period.

Single or output costing is used when the production is uniform and identical and a single article is produced. The total production cost is divided by the number of units produced to get unit or output cost. Examples are mining, breweries, brick making, etc.

Operation costing refers to the methods where each operation in each stage of production or process is separately costed. Thereafter, the cost of finished unit is determined. This is suitable to industries dealing with mass production of repetitive nature for example, motor cars, cycles, toys, etc.

Expenses associated with administering a business on a day to day basis. Operating costs include both fixed costs and variable costs. Fixed costs, such as overhead, remain the same regardless of the number of products produced; variable costs, such as materials, can vary according to how much product is produced.

Businesses have to keep track of both operating costs and costs associated with non-operating activities, such as interest expenses on a loan. Both costs are accounted for differently in a company's books, allowing analysts to see how costs are associated with revenue-generating activities and whether or not the business can be run more efficiently.

14. BIBLIOGRAPHYwww.google.comwww.wikipedia.comwww.icai.comwww.investopedia.comAdvanced Cost Accounting Manan Prakashan