7/25/2019 CA Project (2)
1/21
1
INTRODUCTION
Operating costsare the expenseswhich are related to the operation of a
business, or to the operation of a device, component and piece of equipment or
facility. They are the cost of resources used by an organization just to maintain
its existence.
Operating costs fall under the two broad categories i.e. fixed cost and
variable costs. Operating Cost is calculated by Cost of goods sold Operating
!xpenses. Operating !xpenses consist of"
#dministrative and office expenses li$e rent, salaries, to staff, insurance,
director%s fees etc.
&elling and distribution expenses li$e advertisement, salaries of salesmen.
't includes all operating cost such as salary, rent, stationery, furniture etc.
'n the case of a device, component, piece of equipment or facility (for the
rest of this article, all of these items will be referred to in general as
equipment), it is the regular, usual and customary recurring costs of operating
the equipment. This does not include the capital cost of constructing or
purchasing the equipment (depending on whether it is made by the owner or
was purchased as a constructed system).
Operating costs are incurred by all equipment * unless the equipment
has no cost to operate, requires no personnel or space and never wears out (any
examples+ perhaps intangibles, though not equipment). 'n some cases,
equipment may appear to have low or no operating cost because either the cost
is not recognized or is being absorbed in whole or part by the cost of something
else.
http://en.wikipedia.org/wiki/Capital_costhttp://en.wikipedia.org/wiki/Capital_cost7/25/2019 CA Project (2)
2/21
2
!quipment operating costs may include"
&alariesor agesof personnel
#dvertising
-aw materials
icense or equivalent fees (such as Corporation yearly registration fees)
imposed by a government
-eal estate expenses, including
o -entor easepayments
o Office space rent
o furniture and equipment
o investment value of the funds used to purchase the land, if it is
owned instead of rented or leased
o property taxes and equivalent assessments
o Operations taxes, such as fees assessed on transportation carriers
for use of highways
/uel costs such as power for operations, fuel for production
0ublic 1tilities such as telephone service, 'nternetconnectivity, etc.
2aintenance of equipment
http://en.wikipedia.org/wiki/Salaryhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Advertisinghttp://en.wikipedia.org/wiki/Rentinghttp://en.wikipedia.org/wiki/Leasehttp://en.wikipedia.org/wiki/Salaryhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Advertisinghttp://en.wikipedia.org/wiki/Rentinghttp://en.wikipedia.org/wiki/Lease7/25/2019 CA Project (2)
3/21
3
Office supplies and consumables
'nsurance premium
3epreciation of equipment and eventual replacement costs (unless the
facility has no moving parts it probably will wear out eventually)
3amage due to uninsured losses, accident, sabotage, negligence,
terrorismand routine wear and tear.
Taxes on production or operation (such as subsidence fees imposed on oil
wells)
'ncome taxes
&ome of these are not applicable in all instances. /or example,
# solar panel placed on one4s home for use in generating electric power
generally has only capital costs5 once it4s running there are no personnel
costs, utility costs or depreciation and it uses no extra land (that wasn4t
already part of the place where it is located) so it has no real operating
costs5 however there may need to be ta$en into account costs of
replacement if damaged.
#n automobile or any other item purchased for personal use has no salary
cost because the owner does not charge themselves for operating the
device.
#n item which is leasedmay have some or all of these costs included as
part of the purchase price.
http://en.wikipedia.org/wiki/Accidenthttp://en.wikipedia.org/wiki/Sabotagehttp://en.wikipedia.org/wiki/Negligencehttp://en.wikipedia.org/wiki/Terrorismhttp://en.wikipedia.org/wiki/Wear_and_tearhttp://en.wikipedia.org/wiki/Leasehttp://en.wikipedia.org/wiki/Accidenthttp://en.wikipedia.org/wiki/Sabotagehttp://en.wikipedia.org/wiki/Negligencehttp://en.wikipedia.org/wiki/Terrorismhttp://en.wikipedia.org/wiki/Wear_and_tearhttp://en.wikipedia.org/wiki/Lease7/25/2019 CA Project (2)
4/21
4
MEANING
Operating costing is the method used to ascertain the cost of providing a
service such as transport, hotel, hospital, gas or electricity. Operating costs
denotes the costs of providing a service as opposed to cost of manufacturing a
product. 't is also termed as 6&ervice Costing7. 'C2# has defined operating
costing as that form of operation costing which applies when standardized
services are provided either by an undertaking or by a service cost centre within
an undertaking. Cost #ccounting &tandard 8 9 by 'C# defines :Operating
Cost% 6as the cost incurred in conducting a business activity. Operating costs
refer to the cost of underta$ings, which do not manufacture any product but
which provide services7.
APPLICATION
7/25/2019 CA Project (2)
5/21
5
Operating costing is employed in different types of service industries such as
; Transport services e.g. Truc$ operator, -oad Transport, -ailways, #ir;line
etc.
; 2unicipal services li$e -oad maintenance,
7/25/2019 CA Project (2)
6/21
6
b. Commercial (simple average)" (e.g.) tonne ?m82ultiplying total
distance by average load quantity.
+! The selection of cost unit in the case of operating costing is a difficult
job. 't depends upon the nature of business.
COST UNIT
/or ascertaining costs, it is necessary to decide suitable cost units for each
type of service industry. @asically, operating costing is a type of 0rocess
Costing. Thus it uses the methods of 0rocess Costing when ascertaining the
cost of supply of electricity, steam etc. =owever, sometimes operating costing
may adopt a particular job as a unit of cost for example when costing a
particular trip by a bus so as to quote the charges. 'n such cases operating
costing uses the methods of job costing by treating a specific trip as a separate
job. # cost unit under operating costing may be of two types;
a. &imple cost unit
b. Composite cost unit
/ollowing is the list of different cost units used in different types of service
enterprises;
SER%ICE INDUSTRIES SIMPLE COST UNIT
0assenger Transport
7/25/2019 CA Project (2)
7/21
7
&team, gas
=ospital
ibrary
0er ?.
7/25/2019 CA Project (2)
8/21
8
absorption rate which may be actual or pre;determined. The fixed
costs attributable to the vehicle are debited to the relevant vehicle
account.
#! Re(enue" The revenue from the vehicle is credited to the vehicleaccount.
e! Pro.it or Loss" The vehicle account at this stage will reveal the profit
and loss made on operating that vehicle. The profit or loss is then
transferred to the costing profit and loss account. The total operating
cost of a period is divided by the number of cost units
(?2ApassengerAton etc.) supplied during the period to arrive at the
operating cost per unit for that period.
)! No stoc/s" 'n case of a service industry, there is no question of any
closing stoc$ or wor$; in;progress since it is not possible to store a
service for future use.
*! A$norma& Costs" #ccording to Cost #ccounting &tandard D
(Transportation Costs), abnormal and non;recurring costs shall be directly
debited to 0 E #Ac and shall not from part of operating costs. !xamples
are; penalty, detention charges, demurrage and costs related to abnormal
brea$ down.
7/25/2019 CA Project (2)
9/21
9
STATISTICS
C#;D by 'C# also states that proper records shall be maintained to
determine the actual operating cost of vehicles showing details of various
elements of cost, such as salaries and wages of driver, cleaner and others, cost
of fuel, lubricants, grease, amortized cost of tyres and batteries, repairs andmaintenance, depreciation of vehicles, distance covered and trips made, goods
hauled and transported.
Two basic documents are normally maintained for collection of cost and
operational details i.e. log boo$ and 3aily operation schedule. &ame as job is
assigned a distinct number in job costing method, each vehicle is provided with
a log boo$ or log sheet, which contains all information for operation and cost
control, of one particular vehicle.
LOG 0OO1
ehicle no.
icense no.
-oute no.
3ate"
Time left garage"
Time returned"
Trip recor#
Trip
no!
From To
Pac/age 2eig-t
1ms!
Time
Out Co&&ecte
# onroute
Out In 3ours ta/en
&upplies" FFFFF..
0etrol" FFFFFF..
Oil" FFFFFFF...
7/25/2019 CA Project (2)
10/21
10
!tc." FFFFFFF...
2ost of the details required for controlling the vehicles are available from the
log boo$. # daily operation schedule has to be maintained by firms operating afleet of vehicles, so as to $eep control over utilization of each vehicle,
minimizing vehicle idle hours, and also, $eeping repairs cost under control. #
system of 6requisition of vehicles7 may also be introduced for proper
authorization for use of vehicles. &imilarly, major repairs should be underta$en
after obtaining authorization for the same.
FORMAT OF COST S3EET 4TRANSPORTER5 6
0ASED ON CAS7+
Cost S-eet .or 8mont-9:ear;
!='C! GO.
C#--'#
icense fee, permit fee and taxes
3epreciation
Other fixed cost (specify)
%ARIA0LE COST
&alaries and wages of drivers, cleaners andother operating staff
/uel and lubricants
Consumables
#mortized cost of tyre, tube and battery
&pares
-epairs and maintenance
KK
KK
KK
KK KK
KK
KK
KK
KK
KK
KK
KK
KK
7/25/2019 CA Project (2)
11/21
11
C!
D!
E!
Other variable cost(specify)
TOTAL OPERATION COSTS 4A=05
PROFIT9LOSS
RE%ENUE 4TA1INGS5
KK
KK
KK
The above cost sheet is as prescribed in cost accounting standard ;D by 'C#
which is mandatory w.e.f. 9;L;>M9M. C#&;D is mandatory for cost audits under
the companies act and for computing transport cost under the !xcise act. The
above cost classification is different from the traditional cost classification. 'n
most cases, the final unit cost remains the same, even if the classification vide
C#&;D is different.
Notes,
! Fi"e# costsare costs of owing the vehicles. These must be paid whether
the vehicle runs or not. These also include officeAadministrative
overheads.
%aria$&e costsare incurred to actually run a vehicle. These vary with the
operations; the more a vehicle runs, the higher are the variable costs.
'! E..ecti(e /i&ometresN -un load N Ione way trip ($m.) trips per day
days operatedJIcarriage capacityusage rateJ
>.9. 'n case of passenger transport, carriage capacity is in terms of
seats5 and cost unit is effective $ilometres per passenger.
7/25/2019 CA Project (2)
12/21
12
>.>. 'n case of goods transport, carriage capacity is in terms of Tonnes5
and cost unit is effective $ilometres per Tonne.
)! Cost per /i&ometreN operation cost A effective $ilometres
*! Re(enue 8or ta/ings > cost = pro.it; per /i&ometreN Ta$ings A effective
$ilometre
+! Tari.. to $e c-arge# per /i&ometre N Ta$ings per effective $m. A
3istance of trip
?! Specia& points" cost of battery, tyres and tubes shall be amortized over its
useful life.
T3E COSTS OF OPERATING TRUC1S
Our methodology for determining truc$;operating costs differs
substantially from that for passenger vehicles because there are very different
types of information available. hen loo$ing atcars, there are many third party
sources that estimate operating costs and resale values of different models, as a
service to potential buyers. Go similar service exists for truc$s. This is probably
because buyers of truc$s are more $nowledgeable about their purchases, and
hence have less use for such services. &ince they are using truc$s for a specific
purpose, they tend to buy the same type of truc$ over and over, and hence have
a good understanding of costs and resale values.
The result of this lac$ of third party cost estimates is that Truc$
operators must develop estimates of truc$ costs more from research sources,
which will in general be aimed at purposes slightly different than ours. That is,
7/25/2019 CA Project (2)
13/21
13
they may include some fixed costs, or some costs that may vary with the
number of trips but not with the number of miles driven.
hile there are obviously many different sizes and types of truc$s, they
estimate a single composite value to account for all of them. This was done for
two reasons. /irst, analysts will typically not have detailed counts of different
types of truc$s. &econd, and more importantly, we could not establish robust
estimates of the costs of operating different types of truc$s. The available
sources tend to focus either on long;haul tractor;trailer combination truc$s, or
on 6all7 commercial truc$s5 there does not seem to be much information on
how types of truc$s differ from each other.
The lac$ of information on the costs of different truc$ types is especially
problematic given that they are interested in a specific type of cost, namely
operating the truc$ on a highway under varying start;stop and pavement
roughness conditions. =owever, available estimates of operating costs tend to
focus on the 6typical7 environment for a truc$ type, which may be very
different from this. /or example, truc$s used in construction and for deliveries
operate mostly in extreme conditions5 on a highway they may cost less, but no
one has had reason to figure this out. #nd ultimately they don%t have that much
precision available on the costs of combination truc$s, which are the type that
they $now the most about. &o to be conservative, they derive a consensus
operating cost and assume that this cost applies to all truc$ types.
7/25/2019 CA Project (2)
14/21
14
Roa# Transport Operations
8Ascertaining Cost o. Roa# transport o. ser(ice
(e-ic&e;
Fie, Transport
Su$7.ie, Commercia& Roa# Transport
Purpose, 0eople credited with this unit standard are
able to identify the variable and fixed cost
components of a vehicle used in a road
transport operation and develop a costing
system for a road transport service vehicle.
Specia& notes, De.initions
# road transport operation may form part of
a road transport organization or it may
constitute a complete organization5 Vehicle
may be a single vehicle or a combination
vehicle.
7/25/2019 CA Project (2)
15/21
15
E&ements an# Per.ormance Criteria,
E&ement
'dentify the variable and fixed cost components of a vehicle used in
a road transport operation.
-ange" includes but is not limited to 8 -oad 1ser Charges, fuel,
wages and salaries, tyres, repairs and maintenance (both
scheduled and unexpected), depreciation and interest,
overheads, insurance.
Per.ormance criteria
Costs identified are consistent with historical data andAor industry survey.
E&ement '
3evelop a costing system for a road transport service vehicle.
-ange" per $ilometer, per hour, per day, per month.
Per.ormance criteria
Costing system reflects the aggregation of identified cost components.
-ange" fixed costs, running or standing costs, variable costs.
Gote"
Costing system includes a process for the review of the costing
constants and the updating of data.
Costing system is evaluated on two assignments, one biased for
time, one biased for distance.
Calculations are chec$ed and accurate.
7/25/2019 CA Project (2)
16/21
16
CASE STUD@ 6 TRANSPORT INDUSTR@
Mamta Transport ser(ice 8transport contractors;
Supp&iers o. a&& t:pes o. (e-ic&es
O2ner 6 Mr! An/us- 1! Langa#e
A##ress, C-ec/ na/a tempo o2nerBs association near Mo#e&&a
mi&& 2ag&e c-ec/ na/a t-ane 6 * ?*!
3istor:
The owner, 2r. #n$ush ?. angade started business with one truc$
in 9PP> for -s. >, DM,MMM. =e bought additional truc$ for -s. >, PM,MMM in 9PPD
and in 9PPP for -s. Q, QM,MMM. Then due to some business crisesAlosses, he sold
all Q truc$s for -s. 9,LM,MMM, -s. 9,LD,MMM and -s, >,MM,MMM respectively.
hen he recovered his losses and came into stable position, he
again started business in >MML by purchasing one new truc$ costing
-s. L, DM,MMM having capacity of >.D tonnes and in >MMR he made addition of
new truc$ having capacity of D tonne for -s. P, MM,MMM.
7/25/2019 CA Project (2)
17/21
17
At present
#t present, his business is running on > truc$s which are purchased
on >MML and >MMR respectively and have estimated life of 9M years. @oth the
truc$s are of T#T# Company and used for goods transport as .D tonnes
>M days
9
9M $ms
M3 * DS '
D tonnes
>M days
9
R $ms
STE
P
PARTICULARS TRUC1 I TRUC1 II
A! FILMM
LRMMM
QMMMM
RDMM
>>MMM
>MMM
9MMM
>LMM
7/25/2019 CA Project (2)
18/21
18
0!
C!
D!
E!
TOTAL FI
7/25/2019 CA Project (2)
19/21
19
CONCLUSION
e conclude that operating costing is technique and process by which
one can ascertain the cost of rendering services. @ut such variable or standing
costs could also change after the project is over, again because either the
length or the operating conditions, especially speed, might have changed for
certain trips.
7/25/2019 CA Project (2)
20/21
20
0I0LIOGRAP3@
COST ACCOUNTING $: Ainapure
HE0LIOGRAP3@
-ttp,99en!2i/ipe#ia!org92i/i9operatingcost
-ttp,99222!tec-no&og:e(a&uation!com9searc-9.or9in#ian7truc/s7
operatingcosts
7/25/2019 CA Project (2)
21/21
21
Top Related