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    Operating Costing / Service Costing

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    Bhanu Dang
    This document discusses service costing, which is a method used by firms providing services to determine the cost per unit of service. It provides examples of different types of service costing like transport, tourism, canteen, and hospital costing. Transport costing, which aims to determine the cost of carrying passengers or goods, is discussed in more detail. The document explains the concepts of cost unit, absolute tonne-km, and commercial tonne-km in the context of transport costing. It also includes two illustrations calculating passenger-kms and absolute and commercial tonne-kms for transport examples.

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    Operating Costing / Service Costing

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    Bhanu Dang
    39 views4 pages
    This document discusses service costing, which is a method used by firms providing services to determine the cost per unit of service. It provides examples of different types of service costing like transport, tourism, canteen, and hospital costing. Transport costing, which aims to determine the cost of carrying passengers or goods, is discussed in more detail. The document explains the concepts of cost unit, absolute tonne-km, and commercial tonne-km in the context of transport costing. It also includes two illustrations calculating passenger-kms and absolute and commercial tonne-kms for transport examples.

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    This document discusses service costing, which is a method used by firms providing services to determine the cost per unit of service. It provides examples of different types of service costing like transport, tourism, canteen, and hospital costing. Transport costing, which aims to determine the cost of carrying passengers or goods, is discussed in more detail. The document explains the concepts of cost unit, absolute tonne-km, and commercial tonne-km in the context of transport costing. It also includes two illustrations calculating passenger-kms and absolute and commercial tonne-kms for transport examples.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views4 pages

    Operating Costing / Service Costing

    Uploaded by

    Bhanu Dang
    This document discusses service costing, which is a method used by firms providing services to determine the cost per unit of service. It provides examples of different types of service costing like transport, tourism, canteen, and hospital costing. Transport costing, which aims to determine the cost of carrying passengers or goods, is discussed in more detail. The document explains the concepts of cost unit, absolute tonne-km, and commercial tonne-km in the context of transport costing. It also includes two illustrations calculating passenger-kms and absolute and commercial tonne-kms for transport examples.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    B.Com. (Hons.

    ) IV Semester Section A

    OPERATING COSTING / SERVICE COSTING

    Meaning:

    Service Costing is a method of costing employed by the firms which are engaged in
    rendering services in order to ascertain the cost per unit of service. According to CIMA,
    London, “Operating costing is that form of operation costing which applies where
    standardised services are rendered either by an undertaking or by a service centre
    within an organisation.”

    Transport
    Costing

    Tourism Canteen
    Costing Costing

    Service
    Costing

    Educational
    Hotel
    Institution
    Costing
    Costing

    Hospital
    Costing

    Figure 1: Forms of Service Costing

    Characteristics:

    Characteristics of such organisations/undertakings/firms are as follows1:

    1. Service provided is standardised i.e., all customers receive similar kind of


    services repetitively.
    2. Services are produced on a continuous basis.
    3. Investment in fixed assets is more than the working capital requirement.
    4. Operating costs of providing services are categorised as fixed costs and
    variable costs.

    Cost Unit:

    Selecting an appropriate cost unit is extremely important. The cost units may be:

    1
    Fundamentals of Cost Accounting, Surender Singh, 2019, Kitab Mahal.
    DR. MANIKA JAIN 1
    B.Com. (Hons.) IV Semester Section A

    1. Simple Cost Unit


    2. Composite Cost Unit

    Cost Unit Undertaking Cost Unit

    Transport Per km

    Salon Per service


    Simple
    Cost Units Restaurant Per dish

    Water Supply Per 1000 litres

    Transport Per passenger km

    Hotel Per room per day


    Composite
    Cost Units Electricity Per kw hour

    Hospital Per bed per day

    Figure 2: Types of Service Cost Units

    TRANSPORT COSTING:
    Transport costing is a type of service costing which is employed by the firms engaged
    in providing transportation services, via rail, road or air. The objectives of transport
    costing are:
    • To determine the cost of carrying passengers or goods.
    • To determine the price/freight/fare to be charged from users of such services
    • To help the management in decision-making.

    Cost Unit

    Passenger- Goods-
    Kilometres Kilometres

    Absolute Commercial Absolute Commercial


    tonne-km tonne-km tonne-km tonne-km

    Figure 3: Determination of Cost Unit

    Absolute tonne-km: cost units between two stations are separately calculated and
    then totalled up.

    DR. MANIKA JAIN 2


    B.Com. (Hons.) IV Semester Section A

    Commercial tonne-km: cost units are calculated by multiplying total distance in km by


    average load quantity.

    The Format:

    Source: https://theinvestorsbook.com/wp-content/uploads/2019/06/Operating-Cost-Sheet.jpg

    DR. MANIKA JAIN 3


    B.Com. (Hons.) IV Semester Section A

    Illustrations:
    1. Broadways Co. runs six buses between two towns which are 100 kms apart.
    The seating capacity of each bus is 50 passengers. Actual passengers carried
    are 70% of the seating capacity. All the 4 buses run for 25 days a month making
    one round trip per day. Calculate the total passenger-kms.

    Solution:
    Total Passenger-kms
    = No. of buses X Distance per round trip X No. of round trips per day X No. of
    days X Capacity of the bus X Actual capacity utilised
    = 4 X (100 kms X 2) X 1 X 25 days X 50 passengers X 70%
    = 7,00,000 passenger-kms

    2. 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
    distances between P to Q, Q to R and then R to P are 40 kms, 60 kms. and 80
    kms. Respectively. Compute ‘absolute tonne-km.’ and ‘commercial tonne-km’.
    (B. Com. Hons. Delhi; CA Inter)

    Solution:
    Absolute Tonne-kms
    = (10 tonnes x 40 kms.) + (6 tonnes x 60 kms.) + (8 tonnes x 80 kms.)
    = 400 + 360 + 640 = 1,400 tonne-kms.
    Commercial Tonne-kms.
    =Average load x Total km. travelled
    = {10+6+8/3} tonnes x 180 kms. = 1,440 tonne-kms.

    Note:
    Attempt all solved illustrations and revert for queries through Google Classroom platform.
    Assignment questions will be posted therefrom.

    DR. MANIKA JAIN 4

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