chapter 9 operating costing -...

Operating Costing

Question 1 Distinguish between Operating Costing and Operation Costing.

Answer (1) Operating Costing: It 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 organisation 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: It represent a refinement of process costing. In this each operation instead of each process of stage of production is separately costed. This may offer better scope for control. At the end of each operation, the unit operation cost may be computed by dividing the total operation cost by total output. Question 2 (a) What do you understand by Operating Costs? Describe its essential features and state

where it can be usefully implemented. (b) A chemical factory runs its boiler on furnace oil obtained from Indian Oil and Bharat

Petroleum, whose depots are situated at a distance of 12 and 8 miles from the factory site. Transportation of Furnace Oil is made by the Company's own tank lorries of 5 tons capacity each. Onward trips are made only on full load and the lorries return empty. The filling-in time takes an average 40 minutes for Indian Oil and 30 minutes for Bharat Petroleum. But the emptying time in the factory is only 40 minutes for all. From the record available it is seen that the average speed of the company's lorries works out to 24 miles per hour. The varying operating charges average 60 paise per mile covered and fixed charges give an incidence of Rs. 7.50 per hour of operation. Calculate the cost per ton mile for each source.

Cost Accounting 9.2

Answer (a) Operating Costs are the costs incurred by undertakings which do not manufacture any

product but provide a service. Such undertakings for example are — Transport concerns, Gas agencies; Electricity Undertakings; Hospitals; Theatres etc. Because of the varied nature of activities carried out by the service undertakings, 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: (a) Operating and running charges. It includes expenses of variable nature. For

example expenses on petrol, diesel, lubricating oil, and grease etc. (b) Maintenance charges. These expenses are of semi-variable nature and

includes the cost of tyres and tubes, repairs and maintenance, spares and accessories, overhaul, etc.

(c) Fixed or standing charges. These includes garage rent, insurance, road licence, depreciation, interest on capital, salary of operating manager, etc.

(2) 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 Undertakings. (b) Statement showing the cost per ton mile of carrying furnace oil from Indian Oil

and Bharat Petroleum Depots to Chemical Factory Indian Oil Bharat Petroleum Rs. Rs. Variable Cost of Operating (See working note l)

14.40 9.60

Fixed Charges (See working note 2)

17.50 9.60

Total Cost 31.90 23.35 Cost per ton-mile 53 paise (Approx.) 58.00 paise (Approx)

Working Notes Indian Oil Bharat Petroleum

1. Distance of Oil Depots from Chemical Factory:

Mileage covered under one trip by a lorry Variable cost of operating @ 60 paise per mile

12 miles

24 miles Rs. 14.40

8 miles

16 miles Rs. 9.60

2. Running time of lorries at a speed of 24 m.p.h.

60 minutes 40 minutes

Operating Costing 9.3

Filling in time 40 minutes 30 minutes Emptying time 40 minutes 30 minutes Total time 140 minutes 140 minutes Fixed charges @ Rs. 7.50 per hour Rs. 17.50 Rs. 13.75 3. Load carried by tank lorries 5 tones 5 tones

Total effective tons-mile 60 40 (12 miles × 5 tons) (8 miles × 5 tons)

Cost per ton mile = milestonseffectiveTotal

CostTotal

In the case of Indian Oil

Cost per ton mile = Paise17.5360

90.31.Rs

Similarly, in the case of the Bharat Petroleum

Cost per ton-mile = Paise38.5840

35.23.Rs

Question 3 Write short note on operation costing. (May, 1996, 4 marks)

Answer Operation Costing: It is defined as the refinement of process costing. It is concerned with the determination of the cost of each operation rather than the process. In those industries where a process consists of distinct operations, the method of costing applied or used is called operation costing. Operation costing offers better scope for control. It facilitate 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. Question 4 SMC is a public school having five buses each plying in different directions for the transport of its school students. In view of a large number of students availing of the bus service, the buses work two shifts daily both in the morning and in the afternoon. The buses are garaged in the school. The work-load of the students has been so arranged that in the morning the first trip picks up the senior students and the second trip plying an hour later picks up the junior students. Similarly in the afternoon the first trip drops the junior students and an hour later the second trip takes the senior students home.

Cost Accounting 9.4

The distance travelled by each bus one way in 8 kms. The school works 25 days in a month and remains closed for vacation in May, June and December. Bus fee, however, is payable by the students for all the 12 months of the year. The details of expenses for a year are as under:

Driver's salary Rs. 450 per month per driver Cleaner's salary Rs. 350 per month (Salary payable for 12 months) (One cleaner employed for all the five buses)

License fee, taxes etc. Rs. 860 per bus per annum Insurance Rs. 1,000 per bus per annum Repairs & Maintenance Rs. 3,500 per bus per annum Purchase price of bus (Life 12 years)

Rs. 1,50,000 each

Scrap value Rs. 30,000 Diesel cost Rs. 2.00 per litre.

Each bus gives an average mileage of 4 kms per litre of diesel. Seating capacity of each bus is 50 students. The seating capacity is fully occupied during the whole year. Students picked up and dropped within a range upto 4 kms. of distance from the school are charged half fare and fifty percent of the students travelling in each trip are in this category. Ignore interest. Since the charges are to be based on average cost, you are required to: (i) Prepare a statement showing the expenses of operating a single bus and the fleet of five

buses for a year. (ii) Work out the average cost per student per month in respect of (A) Students coming from a distance of upto 4 kms. from the school and (B) Students coming from a distance beyond 4 kms. from the school

Answer SMC Public School

Operating Cost Statement Per Bus Per Annum Fleet of 5 buses p.a. Particulars Rate

No. Rs. No. Rs. Driver's salary Cleaner's salary Licence fee, taxes etc. Insurance

450 p.m. 350 p.m. 860 p.a.

1,000 p.a.

1 1/5

5,400 840 860

1,000

5 1

27,000 4,200 4,300 5,000


Repairs & Maintenance Depreciation Diesel (See Note 1) Total Cost per month No. of students on half fee basis (see Note 2) Cost per student (half fee) Cost per student (full fee)

3,500 p.a. 10,000 p.a.

3,500 10,000

7,200 28,800

2,400

150 Rs. 16.00 Rs. 32.00

17,500 50,000 36,000

1,44,000 12,000

750

Rs. 16.00 Rs. 32.00

Working Notes 1. Calculation of Diesel Cost per bus.

Number of trips of 8 kms. each day 8. Distance travelled per day by a bus: 8 × 8km / trip = 64 km. Distance travelled during a month : 64 × 25 = 1,600 km. Distance travelled p.a. 1,600 × 9 = 14,400 km. (May, June and December being vacation) Mileage 4 km./litre Diesel required 14,400/4 = 3,600 litres. Cost of diesel @ Rs. 2 per litre = Rs. 7,200 p.a. per bus.

2. Calculation of number of students per bus Bus capacity 50 students. Half fare 50% i.e. 25 students. Full fare 50% i.e. 25 students. Full fare students as equivalent to half fare students i.e. 50 students. Total number of half fare students. 75 students. per trip Total number of half fare students in two trips 150 students. On full fare basis, number of students in two trips 75 students.

Question 5 SHANKAR has been promised a contract to run a tourist car on a 20 km. long route for the chief executive of a multinational firm. He buys a car costing Rs. 1,50,000. The annual cost of insurance and taxes are Rs. 4,500 and Rs. 900 respectively. He has to pay Rs. 500 per month for a garage where he keeps the car when it is not in use. The annual repair costs are estimated at Rs. 4,000. The car is estimated to have a life of 10 years at the end of which the scrap value is likely to be Rs. 50,000.

Cost Accounting 9.6

He hires a driver who is to be paid Rs. 300 per month plus 10% of the takings as commission. Other incidental expenses are estimated at Rs. 200 per month. Petrol and oil will cost Rs. 100 per 100 kms. The car will make 4 round trips each day. Assuming that a profit of 15% on takings is desired and that the car will be on the road for 25 days on an average per month, what should he charge per round-trip? Answer

Statement of Operating cost. Standing charges Per Annum Per Month Rs. Rs. Depreciation Insurance Taxes Garage (Rs. 500 × 12) Annual repairs Driver's Salary (Rs. 300× 12) Incidental expenses (Rs. 200 × 12)

10,000 4,500

900 6,000 4,000 3,600 2,400

31,400 2,616.67

Variable expenses Petrol and Oil : 4,000.00

(4,000*kms × 100100

1 .Rs.kms )

Total Cost (without commission) 6,616.67 Let X be the total takings per month

Driver's Commission = 10% of X = 10100

10 X

Profit = 15% of X = 203

10015 XX

Total takings per month = Total cost + Driver's Commission + Profit

or X = Rs. 6,616.67 + 203

100XX

or X – 3X/20 – X/10 = Rs. 6,616.67

or 67616620

2320 .,.RsX–X–X

or 67616620

15 .,.RsX


or X = 3

4676166 .,.Rs = Rs. 8,822.22

Total number of round trips per month : 25 days × 4 round trips per day = 100

Hence the charge per round trip = 100

22.822,8.Rs

= Rs. 88.22

* 20 kms. x 2 x 4 x round trips x 25 days = 4,000 kms. Question 6 The Union Transport Company has been given a twenty kilometer long route to play a bus. The bus costs the company Rs. 1,00,000. It has been insured at 3% per annum. The annual road tax amounts to Rs. 2,000. Garage rent is Rs. 400 per month. Annual repair is estimated to cost Rs. 2,360 and the bus is likely to last for five years. The salary of the driver and the conductor is Rs.600 and Rs. 200 per month respectively in addition to 10% of takings as commission to be shared equally by them. The manager's salary is Rs.1,400 per month and stationery will cost Rs. 100 per month. Petrol and oil cost Rs. 50 per 100 kilometers. The bus will make three round trips per day carrying on an average 40 passengers in each trip. Assuming 15% profit on takings and that the bus will ply on an average 25 days in a month, prepare operating cost statement on a full year basis and also calculate the bus fare to be charged from each passenger per kilometer.

Answer Union Transport Company

Statement showing Operating Cost of the bus per annum A. Fixed Charges

Rs. Manager's Salary 16,800 (Rs. 1,400 × 12) Driver's Salary 7,200 (Rs. 600 × 12) Conductor's Salary 2,400 (Rs.200 × 12) Road Tax 2,000 Insurance 3,000 (3% of Rs. 1,00,000) Garage rent 4,800

Cost Accounting 9.8

(Rs. 400 x 12) Stationery 1,200 (Rs. 100 × 12) Depreciation 20,000 (Rs. 1,00,000/5 years) 57,400

B. Maintenance Costs Repairs 2,360

C: Running Charges Petrol and Oil (36,000 Km* × Rs. 50)/100 18,000 Total Cost (A + B + C): 77,760 Add: 10 percent of takings for commission of Driver and Conductor and 15 percent for desired profit i.e. 25 percent of takings or 3

133 percent on Total Cost 25,920

1,03,680 *Calculation of distance covered (20 Km × 2 × 3 × 25 × 12 ) = 36,000 Km per annum Calculation of bus fare to be charged Effective Passenger Kilometers: = 14,40,000 (2 × 20 Km × 3 trips × 40 passengers × 25 days × 12 months) Rate to be charged per kilometer from 7.2 Paise each passenger (Rs. 1,03,680/14,40,000) Question 7 A company is considering three alternative proposals for conveyance facilities for its sales personnel who have to do considerable travelling, approximately 20,000 kilometers every year. The proposals are as follows: (i) Purchase and maintain of its own fleet of cars. The average cost of a car is Rs. 1,00,000. (ii) Allow the executive to use his own car and reimburse expenses at the rate of Rs. 1.60

paise per kilometre and also bear insurance costs. (iii) Hire cars from an agency at Rs. 20,000 per year per car. The Company will have to bear

costs of petrol, taxes and tyres. The following further details are available: Petrol Rs. 0.60 per km. Repairs and maintenance Rs. 0.20 P per km. Tyre rs. 0.12 P per km.


Insurance Rs. 1,200 per car per annum. Taxes Rs. 800 per car per annum. Life of the car: 5 years with annual mileage of 20,000 kms. Resale value : Rs. 20,000 at the end of the fifth year. Work out the relative costs of three proposals and rank them.

Answer Alternative Proposals I II III Use of Concern's

Car Use of own

Car Use of hire Car

Rs. Rs, Rs. Re-imbursement of hire charges (A) 1.60 1

( 20,000/20,000Km) Fixed Costs: (B) (Per Car Per Km.)

Taxes (P.a.) 800 — — 0.04 800/20,000 Km. Depreciation 16,000 — — —

5)000,20.Rs000,00,1.Rs(

Insurance 1,2000 — 0.06 — _____ ___ (1200/20,000 Km) ___ Total 18,000 0.90 1.06 1.04 (Rs. 18,000/20,000 Km.) Running & Maintenance Cost per car per km. (C) Petrol 0.60 — 0.60 Repairs and maintenance 0.20 — — Tyre 0.12 — 0.12 Total cost: per km. (A + B + C) 1.82 1.66 1.76 Cost for 2,000 Kms. Rs.36,400 Rs. 33,200 Rs. 35,200 (20,000×Rs.1.82) (20,000×Rs.1.66) (20,000×Rs.1.76) Ranking of alternative proposals III I II

Cost Accounting 9.10

Decision: Use of own car by Sales Executives will be the most economical proposal from the

Concern's point of view. Hiring of car, for the use of Sales Executives will be the IInd best choice and maintaining a fleet of cars for its executives will be the costliest alternative.

Question 8 Prakash Automobiles distributes its goods to a regional dealer using a single Lorry. The dealer's premises are 40 kilometres away by road. The lorry has a capacity of 10 tonnes and makes the journey twice a day fully loaded on the outward journeys and empty on return journeys. The following information is available for a Four Weekly period during the year 1990:–

Petrol consumption 8 kilometers per litre Petrol cost Rs. 13 per litre Oil Rs. 100 per week Driver's wages Rs. 400 per week Repairs Rs. 100 per week Garage rent Rs. 150 per week Cost of Lorry (Excluding Tyres) Rs. 4,50,000 Life of Lorry 80,000 kilometres Insurance Rs. 6,500 per annum Cost of Tyres Rs. 6,250 Life of Tyres Rs. 25,000 kilometres Estimated sale value of Lorry at the end of its life Rs.50,000 Vehicle Licence Cost Rs. 1,300 per annum Other overhead cost Rs. 41,600 per annum The Lorry operates on a five day week. Required: (a) A statement to show the total cost of operating the vehicle for the four weekly period

analysed into running costs and fixed costs. (b) Calculate the vehicle cost per kilometer and per tonne kilometer.


Answer (a) Prakash Automobiles' Statement of Operating Cost of the Vehicle

(For the four weekly period) Running Costs Rs.

Petrol Cost 5,200 (Refer to Note 1) Oil expenses 400 Driver's wages 1,600 Repairs 400 Tyre Cost 800 (Refer to Note 2) Depreciation 16,000 (Refer to Note 3) Total running cost (A) 24,400

Fixed Costs Garage rent 600 Insurance 500 (Refer to Note 4) Licence Cost 100 (Refer to Note 5) Other Overhead 3,200 (Refer to Note 6) Total Fixed Cost (B) 4,400 Total Cost (A + B 28,800

(b) Cost per Kilometre 9.Rs200,3

800,28.Rs

Cost per tonne Kilometre = 80.1.Rstonne10.km600,1

800,28.Rs

Working Note 1. Total distance travelled = 80 km. (distance traveled in 1 trip) by lorry in 4 weeks × 2 trips × 20 days. = 3,200 km. Total consumption of petrol

in 4 weeks = litrekm

km, 40082003

Petrol cost (for 4 weeks) = 400 litres × Rs. 13.


= Rs. 5,200 2. Total distance travelled in 4 weeks = 3,200 km.

Tyre Cost (for 4 weeks) = .km000,25

km200,3250,6.Rs

= Rs. 800 3. Cost of Lorry = Rs. 4,50,000 Estimated sales value of lorry at the end of its life = Rs. 50,000 Life of lorry = 80,000 km

Depreciation (for 4 weeks) = km,,

,.Rs–,,.Rs 200300080

00050000504

= Rs. 16,000

4. Insurance (for 4 weeks) = weeks4weeks52

500,6.Rs

= Rs. 500

5. Licence Cost (for 4 weeks) = weeks4weeks52

300,1.Rs

= Rs.100

6. Other overheads (for 4 weeks) = weeks4weeks52

600,41.Rs

= Rs. 3,200 Question 9 Mr. X owns a bus which runs according to the following schedule: (i) Delhi to Chandigarh and back, the same day. Distance covered: 150 kms, one way Number of days run each month: 8 Seating capacity occupied 90% (ii) Delhi to Agra and back, the same day. Distance covered : 120 kms. One way Number of days run each month: 10 Seating capacity occupied 85% (iii) Delhi to Jaipur and back, the same day Distance covered: 270 kms. one way.


Number of days run each month: 6 Seating capacity occupied 100% (iv) Following are the other details: Cost of the bus Rs. 6,00,000 Salary of the driver Rs. 2,800 p.m. Salary of the Conductor Rs. 2,200 p.m. Salary of the part-time Accountant Rs. 200 p.m. Insurance of the bus Rs. 4,800 p.a. Diesel consumption 4 kms per litre Rs. 6 per litre Road tax Rs. 1,500 p.a. Lubricant oil Rs. 10 per 100 kms. Permit fee Rs. 315 p.m. Repairs and maintenance Rs. 1,000 p.m. Depreciation of the bus @ 20% p.a. Seating capacity of the bus 50 persons. Passenger tax is 20% of the total takings. Calculate the bus fare to be charged from each passenger to earn a profit of 30% on total takings. The fares are to be indicated per passenger for the journeys: (i) Delhi to Chandigarh (ii) Delhi to Agra (iii) Delhi to Jaipur

Answer Working Notes (1) Total running Kms per month: Km. per

trip Trips per

day Days per

month Km. per month

Delhi to Chandigarh Delhi to Agra Delhi to Jaipur

150 120 270

2 2 2

8 10 6

2,400 2,400 3,240

8,040


(2) Passenger Kms. per month: Total seats

available per month

Capacity utilized

% Seats

Km.per trip

Passenger Kms. per

month Delhi to Chandigarh & Back (50 seats × 2 trips × 8 days)

800 90 720 150 1,08,000

Delhi to Agra & Back (50 seats × 2 trips × 10 days)

1,000 85 850 120 1,02,000

Delhi to Jaipur & Back (50 seats × 2 trips × 6 days)

600 100 600 270 1,62,000

Total 3,72,000

Operating Cost Statement (per month) Fixed Costs: Rs. Rs. Salary of Driver Salary of Conductor Salary of the part-time accountant

2,800 2,200

200

Depreciation (Rs.6,00,000×121

10020

) 10,000

Insurance (Rs.4,800 × 1/12) 400 Road Tax (Rs. 1,500 × 1/12) 125 Repairs and maintenance 1,000 Permit Fee 315 _____ Total fixed expenses 17,040 Variable Costs

Diesel ( .Kms

.Kms,4

0408 Rs. 6) 12,060

(Refer to working note 1)

Lubricant Oil ( 10.Rs.Kms100.Kms040,8 ) 804

(Refer to working note 1) Total Cost per month 29,904 Profit and passenger tax together accounts for 50% of total taking p.m. or 100% of cost

29,904 ______

Total takings 59,808 Passenger tax (20% of takings) 11,961.60 Profit (30% of takings) 17,942.60


Rate per passenger Km. = 1607741.0000,72,3.Rs

808,59.Rs passenger Km.

(Refer to working note 2) or (Re. 0.16 say) Fare to be charged Delhi to Chandigarh, per passenger = 150 Kms. × 0.16 = Rs. 24 Delhi to Agra, per passenger = 120 Kms. × 0.16 = Rs. 19.20 Delhi to Jaipur, per passenger = 270 Kms. × 0.16 = Rs. 43.20 Question 10 A Mineral is transported from two mines – 'A' and 'B' and unloaded at plots in a Railway Station. Mine A is at a distance of 10 kms, and B is at a distance of 15 kms. 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 30 kms. 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 cost Rs. 9 per hour operated. Fuel, oil, tyres, repairs and maintenance cost Rs. 1.20 per km. Draw up a statement, showing the cost per tonne-kilometer of carrying mineral from each mine. (Nov. 2000, 8 marks) Answer

Statement showing the cost per tonne-kilometer of carrying mineral from each mine

Mine A Rs.

Mine B Rs.

Fixed cost per trip (Driver's wages, depreciation, insurance and taxes)

A: 1 hour 20 minutes @ Rs. 9 per hour 12 B: 1 hour 30 minutes @ Rs. 9 per hour 13.50 (Refer to working note 1) Running and maintenance cost: (Fuel, oil, tyres, repairs and maintenance)

A: 20 kms Rs. 1.20 per km. 24 B: 30 kms. Rs. 1.20 per km. ___ 36.00


Total cost per trip 36 49.50 Cost per tonne – km 0.72 0.66 (Refer to working note 2) (Rs.36/50 tonnes kms) (Rs.49.50/75 tonnes kms)

Working notes Mine A Mine B 1. Total operated time taken per trip Running time to & fro 40 minutes 60 minutes

kms30utesmin60.kms20

kms30utesmin60.kms30

Unloading time 10 minutes 10 minutes Loading time 30 minutes 20 minutes Total operated time 80 minutes or 90 minutes or 1 hour 20 minutes 1 hour 30 minutes 2. Effective tones – kms 50 75 (5 tonnes × 10 kms) (5 tonnes × 15 kms.)

Question 11 An article passes through five hand operations as follows:

Operation No. Time per article Grade of worker Wage rate per hour 1 2 3 4 5

15 minutes 25 minutes 10 minutes 30 minutes 20 minutes

A B C D E

Re. 0.65 Re. 0.50 Re. 0.40 Re. 0.35 Re. 0.30

The factory works 40 hours a week and the production target is 600 dozens per week. Prepare a statement showing for each operation and in total the number of operators required, the labour cost per dozen and the total labour cost per week to produce the total targeted output. (May 1996, 7 marks)

Answer Statement showing total number of operators required; the labour cost per dozen

and the total labour cost per week to produce targeted output under each operation. Operation No. No. of operators

required * Labour cost of 600 dozens

per week Rs.

Labour cost per dozen

Rs. 1 45 1,170

(45 × 40 × 0.65P) 1.95

(Rs. 1,170/600)


2 75 1,500 (75×40 × 0.50p)

2.50 (Rs. 1,500/600)

3 30 480 (30 × 40 × 0.40p)

0.80 (Rs.480/600)

4 90 1,260 (90 × 40 × 0.35p)

2.10 (Rs. 1,260/600)

5 60 720

(60 × 40 × 0.30 p) 1.20

(Rs. 720/600) 300 5,130 8.55

* Working Note Operation No. No. of operators required

1 6015

4012dozens600

= 45

2 6025

4012dozens600

= 75

3 6010

4012dozens600

= 30

4 6030

4012dozens600

= 90

5 6020

4012dozens600

= 60

Question 12 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 from R to P are 40 kms, 60 kms, and 80 kms, respectively. Compute 'Absolute tonne-km' and 'Commercial tonne-km'. (May, 1995, 4 marks)

Answer Absolute tonnes-kms = 10 tonnes × 40 kms + 6 tonnes × 60 kms. + 8 tonnes × 80 kms. = 1,400 tonnes – kms. Commercial tonnes-kms = Average load × Total kilometers travelled

= kms180tonnes3

)8610(


= 8 tonnes × 180 kms = 1,440 tonnes-kms Note: It may be noted that while calculating the absolute tonnes – kms, the travel between

any two stations is considered individually, while in the case of commercial tonne-kms, the trip is considered as a whole.

Question 13 EPS is a Public School having 25 buses each plying in different directions for the transport of its school students. In view of large number of students availing of the bus service, the buses work two shifts daily both in the morning and in the afternoon. The buses are garaged in the school. The workload of the students has been so arranged that in the morning, the first trip picks up senior students and the second trip plying an hour later picks up junior students. Similarly, in the afternoon, the first trip takes the junior students and an hour later the second trip takes the senior students home. The distance travelled by each bus, one way is 16 kms. The school works 24 days in a month and remains closed for vacation in May and June. The bus fee, however, is payable by the students for all the 12 months in a year. The details of expenses for the year 2003-2004 are as under: Driver's salary – payable for all the 12 in month. Rs. 5,000 per month per drive. Cleaner's salary payable for all the 12 months Rs.3,000 per month per cleaner (one cleaner has been employed for every five buses).

Licence Fees, Taxes etc. Rs. 2,300 per bus per annum Insurance Premium Rs. 15,600 per bus per annum Repairs and Maintenance Rs. 16,400 per bus per annum Purchase price of the bus Rs. 16,50,000 each Life of the bus 16 years Scrap value Rs. 1,50,000 Diesel Cost Rs. 18.50 per litre

Each bus gives an average of 10 kms per litre of diesel. The seating capacity of each bus is 60 students. The seating capacity is fully occupied during the whole year. The school follows differential bus fees based on distance traveled as under:


Students picked up and

dropped within the range of distance from the school

Bus fee Percentage of students availing this facility

4 kms 8 kms 16 kms

25% of Full 50% of Full

Full

15% 30% 55%

Ignore interest. Since the bus fees has to be based on average cost, you are required to (i) Prepare a statement showing the expenses of operating a single bus and the fleet of 25

buses for a year. (ii) Work out average cost per student per month in respect of: (a) Students coming from a distance of upto 4 kms from the school. (b) Students coming from a distance of upto 8 kms from the school; and (c) Students coming from a distance of upto 16 kms from the school (May, 2004, 10 marks)

Answer (a) (i) EPS Public School

Statement showing the expenses of operating a single bus and the fleet of 25 buses for a year

Particulars Per bus

per annum (Rs.)

Fleet of 25 buses per annum

(Rs.) Running costs : (a) Diesel (Refer to working note 1) Repairs & maintenance costs: (B) Fixed charges: Driver's salary Cleaners salary Licence fee, taxes etc. Insurance Depreciation

56,832

16,400

60,000

7,200 2,300

15,600 93,750

14,20,800

4,10,000

15,00,000

1,80,000 57,500

3,90,000 23,43,750


Total fixed charges: (C) Total expenses: (A+B+C)

1,78,850 2,52,082

44,71,250 63,02,050

(iii) Average cost per student per month in respect of students coming from a distance of:

a) 4 kms. from the school (Rs. 2,52,082 / 354 students × 12 months) (Refer to working note 2)

Rs. 59.34

b) 8 kms from the school (Rs. 59.34 ×2)

Rs. 118.68

c) 16 kms from the school (Rs. 59.34 × 4)

Rs. 237.36

Working notes: 1. Calculation of diesel cost per bus: No. of trips made by a bus each day 4

Distance travelled in one trip both ways 32 kms (16 kms × 2 trips) Distance traveled per day by a bus 128 kms (32 kms × 4 shifts) Distance traveled during a month 3,072 kms (128 kms × 24 days) Distance traveled per year 30,720 kms (3,072 kms × 10 months) No. of litres of diesel required per bus per year 3,072 litres (30,720 kms / 10 kms) Cost of diesel per bus per year Rs. 56,832 (3,072 litres × Rs. 18.50)

2. Calculation of number of students per bus: Bus capacity of 2 trips 120 students 1/4th fare students 18 students (15% × 120 students) ½ fare 30% students (equivalent to 1/4 th fare students) 72 students Full fare 55% students (equivalent to 1/4th fare students) 264 students Total 1/4th fare students 354 students


Question 14 A transport company has a fleet of three trucks of 10 tonnes capacity each plying in different directions for transport of customer's goods. The trucks run loaded with goods and return empty. The distance travelled, number of trips made and the load carried per day by each truck are as under:

Truck No. One way Distance Km

No. of trips per day

Load carried per trip / day

tonnes 1 2 3

16 40 30

4 2 3

6 9 8

The analysis of maintenance cost and the total distance travelled during the last two years is as under

Year Total distance travelled

Maintenance Cost Rs.

1 2

1,60,200 1,56,700

46,050 45,175

The following are the details of expenses for the year under review: Diesel : Rs. 10 per litre. Each litre gives 4 km per litre of

diesel on an average. Driver's salary : Rs. 2,000 per month Licence and taxes : Rs. 5,000 per annum per truck Insurance : Rs. 5,000 per annum for all the three vehicles. Purchase Price per truck : Rs. 3,00,000 Life 10 years. Scrap value at the

end of life is Rs. 10,000. Oil and sundries : Rs. 25 per 100 km run. General Overhead : Rs. 11,084 per annum The vehicles operate 24 days per month on an average. Required (i) Prepare an Annual Cost Statement covering the fleet of three vehicles. (ii) Calculate the cost per km. run. (iii) Determine the freight rate per tonne km. to yield a profit of 10% on freight

(Nov., 2001, 10 marks)


Answer (i) Annual Cost Statement of three vehicles

Rs. Diesel 3,36,960 (Refer to working note I) (1,34,784 kms / 4 km) × Rs. 10) Oil & sundries 33,696 (1,34,784 kms/100 kms) × Rs. 25 Maintenance 39,696 (Refer to working note 2) {(1,34,784 kms × 0.25P) + Rs. 6,000} Drivers' salary 72,000 (Rs. 2,000 × 12 months) × 3 trucks Licence and taxes 15,000 Insurance 5,000 Depreciation 87,000 (Rs. 2,90,000/10 years) × 3 trucks General overhead 11,084 Total annual cost 6,00,436

(ii) Cost per km. run

Cost per kilometer run = annuallytravelledkilometreTotal

vehiclesoftcosannualTotal

(Refer to working note 1)

= 4548.4.RsKms784,34,1436,00,6.Rs

(iii) Freight rate per tonne km (to yield a profit of 10% on freight)

Cost per tonne km. = annumper.kmstonneseffectiveTotal

vehiclesthreeoftcosannualTotal

(Refer to working note 1) = 143.1.Rskms312,25,5436,00,6.Rs

Freight rate per tonne km. = Rs. 1.27

109

143.1.Rs


Working notes: 1. Total kilometre travelled and tonnes kilometre (load carried) by three trucks in one

year Truck

number One way

distance in kms

No. of trips Total distance

covered in km per day

Load carried per trip / day

in tonnes

Total effective

tonnes km

1 2 3

Total

16 40 30

4 2 3

128 160 180 468

6 9 8

384 720 720

1824

Total kilometre travelled by three trucks in one year 1,34,784 (468 kms × 24 days × 12 months) Total effective tonnes kilometre of load carried by three trucks during one year 5,25,312

(1,824 tonnes km × 24 days × 12 months) 2. Fixed and variable component of maintenance cost:

Variable maintenance cost per km = travelleddistanceinDifference

costemaintenancinDifference

= kms700,56,1–kms200,60,1

175,45.Rs–050,46.Rs

= Rs. 0.25 Fixed maintenance cost = Total maintenance cost–Variable maintenance cost = Rs. 46,050 – 1,60,200 kms × 0.25 = Rs. 6,000 Question 15 Global Transport Ltd. charges Rs. 90 per ton for its 6 tons truck lorry load from city 'A' to city 'B'. The charges for the return journey are Rs.84 per ton. No concession or reduction in these rates is made for any delivery of goods at intermediate station 'C'. In January 1997 the truck made 12 outward journeys for city 'B' with full load out of which 2 tones were unloaded twice in the way of city 'C'. The truck carried a load of 8 tons in its return journey for 5 times but once caught by police and Rs.1,200 was paid as fine. For the remaining trips the truck carried full load out of which all the goods on load were unloaded once at city 'C'. The distance from city 'A' to city 'C' and city 'B' are 140 kms and 300 kms respectively. Annual fixed costs and maintenance charges are Rs. 60,000 and Rs. 12,000 respectively Running charges spent during January, 1997 are Rs. 2,944.


You are required to find out the cost per absolute ton-kilometre and the profit for January, 1997 (May, 1997, 12 marks) Answer

Operating Cost and Profit Statement M/s Global Transport Ltd.

(during January, 1977) Rs. Fixed Costs 5,000 (Rs. 60,000/12) Maintenance charges 1,000 (Rs. 12,000/12) Running charges 2,944 Total operating cost 8,944 Cost per absolute ton – km 0.20 (Rs. 8,944/44,720 absolute tons – kms) (Refer to working note 3) Net revenue received 12,168 (Refer to working note 4) Less: Total operating cost 8,944 Profit 3,224

Working Notes 1. Outward journeys: (i) From city A to city B: 10 journey × 300 kms × 6 tons = 18,000 tons – kms (ii) From city A to city C: 2 journeys × 140 kms × 6 tons = 1,680 tons – kms. (iii) From city C to city B: 2 journeys × 160 kms × 4 tons = 1,280 tons – kms Total: = 20,960 tons – kms 2. Return journeys: (i) From city B to city A: 5 journeys × 300 kms × 8 tons. = 12,000 tons – kms 6 journeys × 300 kms × 6 tons = 10,800 tons – kms


(ii) From city B to city C: 1 journey × 160 kms. × 6 tons = 660 tons – kms. Total = 23,760 tons – kms 3. Total absolute tonnes – kms of outward and return journeys: (Refer to working notes 1 and 2) = 20,960 tons – kms + 23,760 tons – km = 44,720 tons, - kms. 4. Net revenue received during January, 1997:

12 trucks + 6 tons × Rs. 90 6,480 (from city A to city B) 5 trucks × 8 tons × Rs. 84 3,360 (from city B to city A) 6 trucks × 6 tons × Rs. 84 3,024 (from city B to city A) 1 truck × 6 tons × Rs. 84 504 (from city B to city C) Total revenue 13,368 Less: Fine paid 1,200 Net revenue received 12,168

Question 16 A transport service company is running five buses between two towns which are 50 kms apart. Seating capacity of each bus is 50 passengers. The following particulars were obtained from their books for April, 1998:

Rs. Wages of drivers, conductors and cleaners 24,000 Salaries of office staff 10,000 Diesel oil and other oil 35,000 Repairs and Maintenance 8,000 Taxation, Insurance etc. 16,000 Depreciation 26,000 Interest and other expenses 20,000 1,39,000

Actually, passengers carried were 75 percent of seating capacity. All buses ran on all days of the month. Each bus has made one round trip per day.


Find out the cost per passenger km. (Nov., 1998, 10 marks)

Answer Operating cost statement for the month of April, 1998

Amount Particulars Rs. Rs.

A. Standing charges Wages of drivers, conductors and cleaners Salaries of office staff Taxation, insurance etc. Interest and other expenses

24,000 10,000 16,000 20,000

70,000 B. Running & maintenance cost Repairs and maintenance Diesel oil and other oil Depreciation

8,000

35,000 26,000

69,000 Total cost : (A+B) 1,39,000 Cost per passenger Km. 0.2471

(Rs. 1,39,000/5,62,500 passenger kms) (Refer to working note) Working note Passenger Kms.: No. of Buses × Distance in × Seating × Percentage × No. of days

one round capacity seating in a month trip per day available capacity in each actually bus used in each bus

= 5 Buses × 50 Kms. × 2 × 50 passengers × 75% × 30 days = 5,62,500 Kms. Question 17 In order to develop tourism, ABCL airline has been given permit to operate three flights in a week between X and Y cities (both side). The airline operates a single aircraft of 160 seats capacity. The normal occupancy is estimated at 60% through out the year of 52 weeks. The one-way fare is Rs. 7,200. The cost of operation of flights are:

Fuel cost (variable) Rs. 96,000 per flight Food served on board on non-chargeable basis Rs. 125 per passenger

Commission 5% of fare applicable for all booking


Fixed cost: Aircraft lease Rs. 3,50,000 per flight Landing Charges Rs. 72,000 per flight

Required: (i) Calculate the net operating income per flight. (ii) The airline expects that its occupancy will increase to 108 passengers per flight if

the fare is reduced to Rs. 6,720. Advise whether this proposal should be implemented or not. (3+2=5 marks)

Answer 17

No. of passengers 16060/100 = 96 Rs Rs. (i) Fare collection 967,200 6,91,200 Variable costs: Fuel 96,000 Food 96125 12,000 Commission 5% 34,560 Total variable Costs 1,42,560 Contribution per flight 5,48,640 Fixed costs: Lease 3,50,000 Crew 72,000 4,22,000 Net income per flight 1,26,640 (ii) Fare collection 1086,720 7,25,760 Variable costs: Fuel 96,000 Food 108125 13,500 Commission @ 5% 36,288 Contribution 5,79,972

There is an increase in contribution by Rs. 31,332. Hence the proposal is acceptable

chapter 9 operating costing -...

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