Operating costing finds the cost of a service, such as transport, hotels, hospitals or power supply, per unit of service. It uses simple units (per km, per bed) or composite units (per tonne-km, per passenger-km) and groups costs into standing, maintenance and running charges. Total cost divided by total service units gives the cost per unit, which is the basis for fares and prices.
Following are the operating cost questions and answers.
Operating Costing Problems and Solutions
1. What is Operating Costing Method?
Operating cost is a method to ascertain operating cost per unit where standardized services are provided for example an undertaking engaged in the hotel, cinema, transportation, etc. may use it.
2. What is the object of Transport costing?
- To determine the per unit cost of carrying goods
- To determine fare per passenger etc.
3. What is a simple Cost unit?
Only one factor is considered while computing cost in simple cost unit viz. per tonne per kilometer per bed etc.
4. Give two examples of the Composite cost?
When two cost factor is compounded or considered it is known as compound unit viz. per tonne-kilometer, per passenger km, etc.
5. What is the meaning of standing charges in operating costing?
Standing charges mean those expenses which are based on time and not on the operating process for example insurance premiums, license fees, road tax, etc.
6. In which concern operating costing is applicable?
It is mainly used for the following types of industries:
- Bus, train, and railway industry.
- Electric supply industry.
- Water supply industry.
- Hospital, canteen.
7. What will be the cost per unit in the hotel costing?
Cost unit in hotel costing is per bed, per person, per day.
8. Explain the absolute tonne kilometer?
Absolute tonne-kilometres are found by treating each leg of a journey separately: multiply the weight carried on each leg by the distance of that leg, then add the results.
9. What do you understand by commercial tonne kilometer?
A commercial tonne-kilometer is computed by multiplying the average weight by the total distance of the journey.
10. State the object of the operating costing method?
Objects of transport cost accounting are as under:
- To determine the operating cost and per unit cost of every vehicle for a specified period.
- Comparison of transport cost of vehicles to determine which of the vehicle is beneficial.
- Control over expenses is possible with the help of cost accounts.
- To ascertain utilization of vehicles by computing vehicle utilization ratio.
11. What is the difference between absolute and commercial ton KM?
In absolute ton-km. a journey from one station to another is treated as an independent journey distance multiplied by weight while a commercial tonne-kilometer is computed by multiplying the average weight by the total distance of the journey.
12. What is the meaning of cost unit in operating costing?
- In operating costing: cost units can be classified into two parts simple cost units, and composite cost units.
- Simple cost unit: only one factor is considered while computing cost in simple cost unit viz per tonne, per kilometer per bed, etc.
- Composite cost unit: when two cost factors are compound or considered per passenger km etc.
13. How are expenses classified in transport costing?
Expenses are classified as under:
Standing (fixed) charges depend on time, not distance: licence fees, insurance, road tax, garage rent, supervisor and office salaries, interest on capital, and driver and cleaner wages when paid monthly. Maintenance charges are semi-variable: repairs, overhauls, tyres and garage upkeep. Running (variable) charges rise with distance: fuel, lubricating oil, usage-based depreciation and trip-based wages.
14. What is the daily log Sheet?
A logbook maintained to collect information regarding cost in transport units is termed as a log book this book is useful in cost accounting and control a log book is maintained for every vehicle, daily log sheet is filled in by the driver and he put it up to the transport manager.
Worked Problem: Cost per Passenger-Kilometre for a Bus
A bus makes 2 round trips a day on a 40 km route (160 km a day) for 25 days a month, so it runs 4,000 km. It carries an average of 40 passengers. Monthly costs: standing charges ₹30,000, maintenance ₹10,000, diesel 1,000 litres at ₹90 (₹90,000) and oil and tyres ₹6,000.
| Item | Working | Amount |
|---|---|---|
| Total cost per month | 30,000 + 10,000 + 90,000 + 6,000 | ₹1,36,000 |
| Cost per km | 1,36,000 ÷ 4,000 km | ₹34.00 |
| Passenger-km | 4,000 km × 40 passengers | 1,60,000 |
| Cost per passenger-km | 1,36,000 ÷ 1,60,000 | ₹0.85 |
| Fare with 20% profit on cost | 0.85 × 1.20 | ₹1.02 per passenger-km |
