Professional Documents
Culture Documents
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2.
COST UNIT:
For 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
a.
b.
Following is the list of different cost units used in different types of service
enterprises
Service Industries Simple Cost Unit
Passenger Transport
Goods Transport
Road Maintenance
Water Supply
Canteen
Per Kilometer
Per Kilometer
Per K.M. of Road maintained
Per Kilo Liter of Water Supplied
Per Meal / Dish
Passenger Transport
Goods Transport
Electricity
Steam, Gas
Hospital
Library
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.
TRANSPORT COSTING:
Transport operating costs refer to costs that vary with vehicle usage,
including fuel, tires,
maintenance,
depreciation costs (Booz Allen & Hamilton, 1999). Projects that alter vehicle
Estimate changes in vehicle travel speeds and delay due to road and
traffic conditions.
C.
D.
E.
VARIABLE COST
Salaries and Wages of Drivers, Cleaners & other xx
Operating Staff
xx
Fuel and Lubricants
..
xx
Consumables
xx
Spares
...
xx
Repairs & Maintainable
XX
XX
XX
XX
VEHICAL NO
XXX
XXX
DAYS OPERATED
XXX
Illustrations 1:
1. From the following information calculate total kms and total
passengers Kms
No. of Buses=6
Days Operated in the month=25
Trips mage by each bus = 4
Distance of route 20 Kms (one way)
Capacity of Bus = 40 passengers
Normal passenger travelling 90% of capacity.
SOLUTION:
Total Kms covered = Run
Distance * Two ways * No. of trips * No. of days * No. of buses
20 Kms * 2 * 4 *25 * 6 = 24000 Kms
Solution
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1.
Operating analysis
Particulars
I.
II.
20km
30km
30mins
b. Loading time
b.
III.
20mins
20mins
30mins
10mins
10mins
(5*10km) , (5*15km)
80mins
90mins
50tonn-km 75tonn-km
2.
12
11
13.50
24
36.00
49.50
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Since the cost per tone is the lowest in case material is procure from mine A
it will be considered
Illustrations3:
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
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Solution:
Absolute Tonnes- Kilometer
Q
40km
R
80km
60km
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HOTEL COSTING:
Hotel and lodges, providing daily accommodation facility to general public,
have mushroomed all over the country due to the impetus provide by
modern civilization to travel both on personal and commercial work.
The Operating Costing is applied in lodging houses in order to find out the
cost of accommodation provided.
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15
Rs
Rs
XX
XX
XX
XX
Power
XX
Linen
XX
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Interior decoration
XX
Sundries
XX
Depreciation
-Buildings
-Furniture & fixtures
XX
-Air-conditioners
XX
Premises rent
XX XX
XX
Interest on investment
XX
XX
XX
XX
XX
Illustration1:
A hotel has a capacity of 100 single rooms and 20 double rooms. The
average occupancy of both single and double rooms is expected to be 80%
throughout the year of 365 days. The rent for double room has been fixed at
125% of the rent of a single room. The costs are as under:
Variable costs: single room Rs 220 each per day
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Calculate the rent chargeable for single and double rooms per day in such a
way that the hotel earns a profit of 20% on hire charges of rooms.
Solution:
a.
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Steps Costs
A
Variable Costs
C
D
E
b.
Amt
Amt
16790000
29200
7300
36500
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Illustration 2:
From the following information relating to a hotel, calculate the room rent
to be charged to give a profit of 25% on cost excluding interest charged
on loan for the year ended 31 March, 2008:
st
1.
2.
Wages of the room attendant: Rs 20 per day per room when the
room is occupied.
3.
a.
The normal lighting expenses for a room for the full month is Rs
Power is used only in winter and charges are Rs 200 for a room,
when occupied.
4. Repair to bed and other furniture: Rs 30,000 per annum.
4.
4.
4.
4.
There are 200 rooms in the Hotel, 80% of the rooms are generally
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SOLUTION:
Operating Cost Statement
Particular
Office staff salaries (50,000 12)
Rs p.a.
Rs p.a.
6,00,000
8,16,000
6,80,000
Power (WN 3)
96,000
30,000
Repair to building
50,000
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License fee
12,400
1,20,000
1,00,000
Depreciation:
Building @ 5%
1,00,000
Equipment @10%
5,00,000
Total Cost
Add: Profit 25% of Cost (Excluding interest on
1,50,000
26,54,400
loan)
6,63,600
Total Earnings
33,18,000
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
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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;
2.
3.
X Ray Department,
Scanning Centre,
Pathology Laboratory,
Sonography Department.
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4.
Bolier House,
Power House,
Catering department,
Laundry Room,
Administrative Department,
5.
Transport Department,
Dispensary Department,
UNIT OF COST:
The common units of costs of various departments in a hospital are as
follows:
Department
1. Outdoor Patient Department
Unit of Cost
Per out-patient
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per Room-day
3. X Ray Department
4. Scanning centre
per case
5. Pathology Laboratory
6. Laundry Department
7. Catering Department
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.
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Premises Rent
xx
xx
xx
xx
Depreciation
...
xx
xx XX
xx
Food
xx
Medicines
xx
Diagnostic Services
xx
Laundry
...
..
xx XX
xx
XX
XX
XX
Illustration 1:
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28
Rs. 8100
Rs. 88000
Rs. 30000
Rs.60000
Rs. 75000
Rs.
108000
General Administration Charges allocated
To the unit (Fixed)
Rs.
100000
1.
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.
2.
The unit wants to work on a budget for the year 2004, but the number
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.
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SOLUTIONS:
Calculation of No. of Patients days:
35 beds * 150 days =
5250
25 beds * 80 days
2000
STATEMENT OF COST
Particulars
1. Income Received (Rs. 200 * 8000 Patient days)
2. Variable Costs (Marginal Costs) Per Annum:
Rs
Rs
1600000
Food
Janitor charges
Laundry Charges
Medicines supplied
Doctors Fees
88000
(25000 *12)
30000
60000
75000
300000
7500
3. Fixed costs
a. Salaries:
Supervisors
(2 * 2500 * 12)
60000
Nurses
(4 * 2000 *12)
96000
(4 * 500 * 12)
(7500 *12)
24000
90000
Ward Boys
b. Rent
560500
1039500
30
8100
108000
e. General Administration
100000
486100
553400
Illustration 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.
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The hospital has estimated the following costs of operating the center:
Particulars
Occupancy costs per month
Amt
18000
12000
4000
44
16
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:
Particulars
Indirect cost per month
Amt
Occupancy
18000
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Clerical
12000
Other costs
4000
3400
A.
3____
80
3____
16
44____
240
300
CONCLUSION
Operating costs are expenses that relate to a buisness operations. It can also
refer to the costs of operating a specific device or branch of a corporation.
These costs usually fall into two categories, called fixed costs and variable
costs, and a business may have more of one type than the other.
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Fixed operating costs are 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.
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BIBLIOGRAPHY
www.google.com
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www.wikipedia.com
Advanced Cost Accounting Manan Prakashan