operating cost

INTRODUCTION TO OPERATING COST

The information concerning the business enterprise is very helpful to the management to control it in an efficiently way.

As the other branches like financial accountancy and management accountancy, the cost accountancy also serves the important information to the management regarding the operating efficiency of the business. It becomes very easy for management to lay down management policies, to guide management decisions or evaluate operating management performance with the information provided by cost accounting.

The term operation in business terminology refers to an activity of the business. It is very important to study the operations of the business in detail because depends on the operations, which it performs. The management should always concentrate on the efficiency of the operation and also the costs associated to the operations. It is very important to control the costs associated to the operations for the enterprises like manufacturing companies, companies engaged in the process of extraction of materials from earth like, coal mines etc.

Generally, the above mentioned business enterprises depend on the operation that it has to be performed in to produce in to produce the final output. The costs associated with such operations are generally higher. These costs are called as “operating costs”.

The costs, which are incurred to perform the operation of the enterprise, are called as operating costs.

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These costs are to be accounted for in order to arrive at the total costs of operation or process, which helps in determining the price of the final product.

“Cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, and to the presentation of suitably; arranged data for the purposes of control and guidance of management.”

It includes the ascertainment of the costs of every process, operation, services or contrast as may be appropriate. It deals with the cost of production, selling and distribution. It thus, the provision of such analysis and classification of expenditure as will enable the total cost of any particular unit of production to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how such total cost is constituted (i.e. the value of material used, the amount of labour and other expenses incurred) so as to control and reduce the cost.

THE FEATURES OF COST ACCOUNTING:

1. It is a process of accounting for costs.

2. It records income and expenditure relating to goods and services.

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3. It provides statistical data on the basis of which future estimates are prepared

4. and quotations are submitted.

5. It is concerned with cost ascertainment, cost control and cost reduction.

6. Finally it involves the preparation of right information to the right person at the right time so that it may be helpful to management for planning, evaluation of performance, control and decision-making.

:

ADVANTAGES OF COST ACCOUNTANCY

1. It enables a concern to measure the efficiency and than to maintain and improve it. This can be done with the help of comparison of data made available of the previous periods and current period.

2. It provides information upon which estimates and tenders are based.

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3. It guides for future production polices. It explains the cost incurred and there by provides data on the basis of which production can be appropriately planned.

4. The extract cause of decrease or increase in profit/loss can be detected. A concern may suffer not because of the cost of production is high or prices are low but also because the output is much below the capacity of the concern.

5. Efficiency of public enterprises. Costing has a more important role to play in public enterprises than in private enterprises. The primary objective of the public enterprises is not to raise profits but it is to serve the society by providing quality good at cheaper rates.

The efficiency of a public sector can be judged by comparing its cost of production of its counterparts.

STATEMENT OF THE PROBLEM:

The main focus is on the operating costs of a coal mine in the Singareni collieries company limited.

OBJECTIVES OF THE STUDY:

The study of “operating costs of a coal mine” proposes the following:

To identify the operations of the coal mines.

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To identify the different technologies used to extract the coal from earth.

To find the associated with the process under various technologies.

SCOPE OF STUDY:

The area of the study was restricted to the Singareni collieries company limited and its operations.

METHODOLOGY OF THE STUDY:

Data collection methodsThe study is based on both secondary and examines the

total costs vs. operating costs. The results are drawn mainly from the primary and secondary data collected.

Secondary data has been collected from the various sources such as

Publications of the company. Business magazines. Journal, text books. Websites. Annual reports.

In order to gain information on current process and operations the area chosen for study is the BHOOPALPALLY IN WARANGAL DISTRICT.

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TOOLS & TECHNIQUES OF DATA COLLECTION:

1. This phase of the project deals with the various techniques adopted in gathering information.

2. The information and data was collected during my visit to the coal mine and GM office of Bhupalpally area.

3. The study required observation method, which has both of direct and indirect in NATURE.

4. A questionnaire was adopted was designed to collect the relevant information. Questionnaire consists of both open ended and close-ended questions.

5. The direct approach was adopted to gather as much information as possible, by interacting with persons working in organization such as operational engineers of the mine, additional General Manager (finance), deputy General Manager(finance), accounts officers and other executives and so on.

6. The direct approach was also adopted to gather was also adopted to gather the relevant

7. Information for the study.

Limitations of the study:1. Coverage area was only limited to one coal mine in the

company.2. The financial data of the mines is limited to one year.3. The study is based on secondary data.4. There may be approximation.

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COMPANY PROFILE

INTRODUCTION OF COAL MINING IN INDIA:

Man had blessed with abundance of natural

resources, including mineral wealth. That play vital role in

the development of a country and promote the economic

growth when explored and made best use of them.

Coal, which is one if the important minerals, is

known to man since ages and this natural wealth has put to

diverse use in the modern world. Coal regarded as the fuel

for growth, the coal is an important input for power

generation and many other industries like iron and steel,

railway, shipping and construction industries etc, a vital

infrastructure for economic development. Despite the

development of alternative fuel sources like electricity, petrol

and solar energy, coal continues to be major fuel material in

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many industries. Thus coal industry plays an important role

in the industrial development of any country, like India.

The world coal consumption is projected to go up from

4.7 billion tines in 1999 to 6.4 billion tones by 2020,

primarily in china and India, which are expected tom account

for 75% of the increased consumption.

In India coal mining was started in 1774 and is still

significantly under the Government control and ownership

with coal India Limited (CIL), along with Government with

its following subsidiaries are become number one coal

producer in India.

1. Eastern coal fields India limited (ECFIL) – Sanctrica, west

Bengal.

2. Bharath cooking coal limited (BCCL) – Dhanbad, Bihar

3. Central coal fields limited (CCL) – Ranchi, Bihar.

4. Northern coal fields limited (NCFL) Singrauli, Madhya

Pradesh

5. Western coal fields limited (WCFI) – Nagpur, Maharashtra.

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6. Mahanadi coal fields limited (MCL) – Sambalpur, Orissa

7. Central mining planning & Design institute Limited

(CMPDIL) - Ranchi, Bihar

8. Singareni Collieries Company Limited (SCCL) –

Kothagudem, Andhra Pradesh.

SINGARENI COLLIERIES COMPANY LIMITED:

ORIGIN:

A remarkable little adventure gave birth to this giant

corporate entity that us today the Singareni Collieries Company

Limited.

Way back on a dark night in 1870 a group of Pilgrims

who on their way to have a Darshan of Lord Rama at

Bhadrachalam Temple (near Singareni Village) has lit a fire to

prepare their meal. One of the supporting stones on their

makeshift stove caught fire. The incident was immediately

reported to the local Government.

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This led to an extensive survey by Dr. William King, an

eminent Geologist, which confirmed the revolutionary

discovery of mammoth deposits of coal in the Godavari Valley.

The rest, as they say, is HISTORY :

The year 1886 witnessed the formation of the

Hyderabad Deccan Company Private Limited and It

acquires the mining rights for exploiting the coal reserves.

The first commercial operation commenced at Yellandu

(Khammam District) in Andhra Pradesh in 1889. In 1921 the

company was re-christened the “Singareni Collieries Company

Limited” and its script listed on the London Stock Exchange.

The mining rights for exploiting the coal reserves were

acquired by the Hyderabad Deccan Company, which was

incorporated at London Exchange. Hence the first extracting of

coal was started at Yellandu in 1886 by Hyderabad Deccan

Company.

The company become Government Company after

Nizam purchased its shares from London Stock Exchange in

1945.With this SCCL became the first-ever government

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management Coal Company in India. Later in the year 1949,

SCCL came under the control of Government of India and

Andhra Pradesh as a joint venture with equity ratio of 49% and

51% respectively.

The Bhupalpally Area was started the ensuing the coal

since the year 1997. Till it has working as five underground

mines and one opencast sector – I project. The life of the coal

mines nearly 75 years. So, the village of the Bhupalpally had

changed as Mandal and it has developing Area.

The SCCL is engaged in coal mining in four districts

of Andhra Pradesh namely, Khammam, Karimnagar, Adilabad

and Warangal. In overall India it spreads to 6% geographical

area producing 10% of total coal.

The Operation Areas of SCCL are as follows:

KHAMMAM DISTRICT Kothagudem, Yellandu and Manuguru.

ADILABAD DISTRICT Bellampalli, Mandamarri and

Srirampur

KARIMNAGAR DISTRICT Ramagundem I, II, III

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WARANGAL DISTRICT Bhupalpally.

The Coal reserves stretch over 350 squares Kms. of

Pranahitha Godavari valley of above Districts of Andhra

Pradesh with provide geological reserves of 9384, million tones

of coal.

SCCL now operates Thirty Six (36) under Ground

Mines and fourteen (14) open cast Mines in these four (4)

Districts.

MILE STONES OF TECHNOLOGY INTRODUCTION :

1948 Introduction of machine mining (Shuttle car)

1951 Electric Coal Drills.

1953 Electric cap Lamps.

1954 Flame proof Mining Machinery.

1975 Open Cast mining.

1979 Side Dump Loaders (SDL s)

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1981 Load hauls Dumpers.

1983 Mechanized Long wall.

1986 Introduction of computers and walking Dragline in

Opencast Mines.

1989 French Blasting Gallery Technology.

1994 In pit crushing & conveying Technology.

Vision , Mission and Principles Guiding Sustainable

Development:

Vision :

a. Vision shall bring into view untapped potentials and

unutilized opportunities that await exploitation as well as

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problems and challenges that may impede progress. The

vision must identify catalytic forces that can be harnessed.

b. It must express aspirations, determination and

commitment for self realization.

c. Though planning and prediction over long time horizon

is difficult, desired end results must be dreamt and strategies

to accomplish them shall be drawn. Vision needs a subtle

blend of humility and courage to dare.

d. Vision is realizable only when it neither has lofty

optimism nor extreme pessimism.

The Vision of Singareni is,

“Singareni Collieries to produce coal qualitatively and cost

effectively in a socially and environmentally sustainable

manner, valued by customers, employees, and the community”.

To achieve this vision,

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a. It aims to achieve a best safety performance.

b. Adopt best environmental practices strive to bring back

the nature to the best possible original extent.

c. Attain a sustainable competitive advantage in the

marketplace.

d. Align production to meet market demand.

e. And, continuously improve operational performance.

SCCL – MISSION :

To retain role of a premier coal producing company and

excel in a competitive business environments.

To strive for self – reliance by optimum utilization of

existing resources and earn adequate returns on capital

employed.

To exploit the available mining blocks with maximum

conservation and utmost safety by adopting suitable

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technologies and practices and constantly upgrading them

against international bench marks.

To supply reliable and qualitative coal in adequate quantities

and strive to satisfy customers needs by constantly sharing

their experience and customizing our product.

To emerge as a modal employer and maintain harmonious

industrial relations with the legal and social frame work of

the state.

To emerge as a responsible company through good

corporate governance, by laying emphasis on protection of

environment & ecology and with due regard for corporate social

obligations.

Gloom to Glory :

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The SCCL was receiving budgetary support from both

Government of India and government of Andhra Pradesh till some

time age, but they later abandoned. Also the pricing of coal was

decided by government of India keeping its impact on other major

sectors like, power, Railways, cement etc. The prices were not

revised regularly; also hike in input cost due to periodical revisions

of national coal wage agreements (NCWA), stores and interest

were also not fully compensated by Government. The frequent

strikes by the workers, law and order problems, low productivity,

apart from un remunerative coal price vis-à-vis cost of production

during the period 1989-90 to 1991-92 affected the financial health

of the company and refer referred to BIFR in 1992, but due to

liberal financial package extended by the Govt. of in India

consultation with Govt. of AP, and sustained efforts made by the

management of SCCL and Trade Unions, a modest financial

turnaround was achieved. The company earned profit of

Rs.17.76Crore and 26.64Crore in 1993-94 and 1994-95

respectively. My March 1994, SCCL came out of the BIFR

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purview. Following remedial measures/reforms were taken by the

company for Success:

i. Unifying Trade Unions through Path Breaking

Elections.

ii. High Pitch Communication Drive harnessing media,

launching literacy programs.

iii. Focused multi-faceted worker’s welfare program.

Iv. Establishing outsourcing of non-core and ancillary

activities.

v Innovative programs Launched (Dial-your-GM, Field

Visits, Interactions and Follow-ups).

vi. Fuel Supply Agreements – Technology infusion for

Quality Testing, Workforce visits to client sites.

vii. Focus on Safety, Environment Protection and Labour

Welfare.

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The process of turning around a Sick Company,

which commenced in 1997-98, reached its logical conclusion

when SCCL totally wiped out its accumulated losses and

entered the financial year 2003-04 with a net profit of

RS.80.45core after issuing a dividend of RS.86.70Crore.

DETAILS OF LOCATION OF VARIOUS UNITS:

SCCL operates 51 mines including 14 open cast mines in 10

operating areas in the state of Andhra Pradesh.

Area UG Mines, OC mines, Total & District.

a) Area / Region – wise production :

Areas

No. of Mines

District April,2010

UG OC Total

Kothagudem 2 2 4 Khammam

Yellandu 1 2 3 Khammam

Manuguru 1 1 2 Khammam

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KGM

REGION4 5 9

Bellampalli 1 3 4 Adilabad

Mandamarri 7 - 7 Adilabad

Srirampur 8 2 10 Adilabad

BPA.

REGION16 5 21

Ramagundam-I 5 1 6 Karimnagar

Ramagundam-

II4 1 5 Karimnagar

Ramagundam-

III2 2 4 Karimnagar

Bhupalpally 5 1 6 Warangal

RGM.

REGION16 5 20

Total SCCL 36 15 51

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TABLE – 2.1

THE SINGARENI COLLERIES COMPANY

LIMITED

PRODUCTION PROFILE

(Lakh Tonnes)

Year 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

April

2010

Production 361.38 377.07 406.04 445.46 504.25 35.02

UG Mines 127.11 118.76 126.45 120.87 119.69 9.37

OC 234.27 258.31 279.59 324.59 384.56 25.65

TABLE – 2.2


LIMITED

MANPOWER PROFILE (Lakh

Tonnes)

Year 2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Apr201

0

Manpow 91,97 86,02 82,22 75,52 70,58 69,04 68,844

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er 0 5 4 7 6 3

TABLE – 2.3


LIMITED

PRODUCTION PROFILE

(Lakh Tonnes)

Year2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Over all

productivity

UG-OC

1.62 1.74 1.91 2.10 2.42 2.73

UG mines 0.85 0.89 0.90 1.02 1.05 1.08

The term operation here in general refers to any activity, which is engaged in converting the raw materials into finished goods or the process of producing or extracting the final product.

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This project is concerned with the operation of extracting the coal from the underground and the costs associated with that operation. The company produce s the coal from 2 type mines namely open cast and under ground mines. More specifically this project focuses on the costs of operations in under ground mines. In under ground mines the company follows various technologies to produce the coal are as follows.

Hand section Long walls BG panels Road headers Continuous miner Side discharge loaders Load haul dumpers

In hand section the coal is extracted entirely with Manpower. In machine mining the coal is produced with the help of machines. In machine mining the production process depends largely on machines but it requires some skilled manpower also. The study focuses on the machines called side discharge loaders.

For the purpose of the detailed study of the production process of coal in singareni collieries the coal mine Bhupalpally area was observed.

In the mine, the coal is produced with the help of machines called SDL s (Side Discharge Loaders) besides the hand section.

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Extraction of coal in hand section entirely depends on the man power. The process of extraction of coal from an underground mine which is using the technology of hand section is as follows.

Blasting the faces with the help of explosives. The face is the place where the coal is located; the coal will be separated from the earth using these explosives.

The process of blasting makes it easy to remove the coal from the earth. This process is known as coal cutting. The men ho do this process are known as coal cutters. After cutting into pieces the coal will be filled into tub trains. The men who perform this process are known as coal fillers. The tub trains bring the coal from under ground to the surface using track.

From the surface the coal is transported to the coal screening plant (CSP) for cleaning and other process the coal can be transported to the customers of Singareni.

Another technology of extracting of coal is using SDL s, the main objective of introducing SDL s is to improve safety, avoid the human drudgery of carrying baskets at work space and also better conservation of coal. In the mains where the technology of SDL s is using the coal can be extracted as follows.

Blasting of coal with the help of explosives to separate it from the earth. The machines instead of men can fill the coal. These machines are called as Side Discharge Loaders (SDL s) after the blasting of the coal SDL s move towards the face, takes the coal into its bucket and comes back (in the same direction without

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turning back) and discharge the coal onto a belt. The belt takes the coal and dumps into the tubs of the trains and these tubs will bring the coal to the surface.

The capacity of the bucket of the machine is one tonne. The time taken by the machines to move from the coverage belt to the face where the coal is blasted, to lift coal into the bucket and to discharge the coal onto the coverage belt is called lead time. The lead time takes the major part in computing the cost of the production. Shorter the lead time larger the production and vice e versa.

The process will generally include the following costs.

1. Wages (Filling and Time rated )2. Wages of other executives.3. Explosives.4. Other stores.5. Power.6. Coal transportation.7. Stand stowing8. Mine over heads.9. Work shop over heads.10. CSP over heads11. Depreciation of mines.12. Depreciation of common assets.13. Interest.14. Area over heads.

The system being followed band the steps involved in preparation of cost sheet under the present costing system involved in preparation of cost sheet under the present costing system are explained as follows.

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i. A perform cost sheet followed in presentation of cost sheets for hand section and other technologies is furnished. The expenditure is presented through the cost sheet under various elements of cost.

ii. Cost ascertainment is done through cost centers allotted to the various activities in under ground and surface operations at the mine and overhead costs for the expenditure on service and administrative department.

Elements of costs:Elements of Costs

Material Labour

Other Express

Direct Indirect Direct Indirect

Direct Indirect

Production or Administration Off Selling Off

Distribution Off

Works Off

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By grouping the above element the following division of cost is obtained.

i. Prime cost = Direct material + Direct labour + Direct expenses.

ii. Works or factory cost = Prime costs + Work or factory overheads.

iii. Cost of production = Works cost + Administration overheads.

iv. Total cost or cost of sales = Cost of production + Selling and distribution overheads.

The difference between cost of sales and selling price represents the profit or loss.

Direct Materials:Direct materials and those materials which can be

identified in the production and can be conveniently measured and directly charges to the product. Thus, these materials directly enter the production and form a part of the finished product. For example timber in furniture making clothe in dress making and bricks in building a house.

The following are normally classified as direct materialsi. All raw materials like jute in the manufacturing of

gunny bags, pig iron in foundry and fruits in canning industry.

ii. Material specifically purchased for a specific job, process or order like glue for a book building, starch powder for dressing yarn etc...

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iii. Parts or components purchased or produced like batteries for transistor radios and tries for cycles.

iv. Primary packing materials like cartoons, wrappings, cardboard, boxes, etc... Used to protect finished product from climate conditions or far easy handling inside the factory.

Indirect materials are those materials which cannot be classified as direct materials. For examples, consumables like cotton waste, lubricants, brooms, rags, cleaning materials, materials for repairs and maintenance of fixed assets, high speed diesel used in power generators etc.

Direct Labour: Direct labour is all labour expended in altering,

construction, composition, confirmation or condition of the product. In simple words it is that labour which can be conveniently identified or attributed wholly to a particular job, product of extended in converting raw materials into finished goods.

Indirect wages are the wages paid to supervisors, inspectors etc... Through not direct labour.

Direct Expenses:

All expenses, which can be identified to a particular cost center and hence directly charged to the center, are known as direct expenses. In other words all expenses (other than direct materials and direct labour) incurred specifically for a particular, job, department etc., are called direct expenses. These are directly charged to the product, job, department etc.

Examples of such expenses are royalty, excise duty, hire charges of a specific plant and equipment.

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Overheads:

Overheads may be defined as the aggregate of the costs of indirect materials, indirect labour such other expenses including services as cannot conveniently be charged direct to specific cost units. Thus, overheads are all expenses other that direct expenses.

Overheads are sub-divided as

a. Manufacturing expenses.b. Administration overheads.c. Selling overheads.d. Distribution overheads.e. Research and development overheads.

Expenses included from costs:The total of a product should include only those items

of expenses which are a charge against profit. Items of expenses which are relating to capital assets which are relating to capital assets, capital losses, payments by way of distribution of profits matters of pure finance should not from a part of the costs.

MINING: Mining is an economic activity. It does not belong to a service sector where expenditure is permitted without matching financial returns. Coal mining activity, therefore, is undertaken not only to meet the coal demand but also to enhance financial resources of the coal producer for further advancement and growth.

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Even when coal prices are controlled or regulated by the Govt., a coal producing organization is either given an average price for coal that is expected to yield a reasonable return on overall investments by the producer or is given a subsidy as comprehensive for activities required to be done but are not economical. The coal mining industry in India is largely in public sector and guidelines of the Govt., presently (1998), are that, while approving any coal mining new, reorganization or expansion project, the project should indicate a return (to be precise- internal rate of return- IRR) on investment of minimum 17% at 85% level of projected output. It is, therefore, clear that even the public sector coal mining activity is expected to be an economic activity. The private sector, obviously, will like to have similar or more return on investment. Any mining activity, therefore, has to be viable. Not only just viable but also that which will give minimum acceptable return on investment, of course, following law of the land. Thus all economic activities, including mining are permitted activities that incur least cost and are viable.

IMPORTANT OF TRENDS:

1. It has been started that, opencast costs are rising at a rate slower than costs for under ground. Consequently, many properties, economical today for underground mining, will become opencast able in near future as has happened in the past. A portion of kargali underground mine was converted to opencast in 1950’s.similarly, a portion of kurasia underground was converted to opencast in 1960’s. Today, many erstwhile underground mining properties. In full or part, are being worked and are being converted to be worked by opencast. This trend music must be given due consideration while deciding whether a property should be worked by opencast or by underground mining to be cheaper by 10-15% or so compared to opencast mining, the property should not be worked by underground. After all, an underground mine may have a life of 15 to 20 years and more with in which time

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opencast mining become more viable in many cases, by the time depth is worked by opencast, deeper depth may also become viable for opencast. 2. Similarly, transport costs by rope haulage are rising sharply than transport costs by belt conveyor. This is due to the fact that, a rope haulage system is manpower oriented and wage cost is increasing substantially each year. Therefore, if there is only a sight difference between estimated mining costs for rope haulage and belt system should be preferred if the installation is to last for a few years. Further, belt conveyors can deal with increased output in future more affectivity.

3. Shaft versus incline is another case which can be cited. Supremacy of shaft to meet ventilation requirements is undisputed. As far as coal raising is concerned, an incline equipped with the belt conveyor for coal raising with a rail track for supply is superior to a shaft for similar duties expect perhaps for depths more than 250m at present. In olden days, say three decades ago, initial depths exceeding 70m were planned with shafts only as mine openings. Today, coal raising from such depths is planned through inclines with belt conveyor. Recent mines have been planned with inclines for coal raising from depth exceeding 200m.

4. Marginally better estimated viability for imported technology, not sufficiently field proven, should not be considered for adoption. Only when substantial advantages of such a technology calls for a trail only in geo-mining conditions suitable for such a technology have not yield desired results on sustained basis and such equipments have ultimately become a Burdon on the industry.

Trends and experience, therefore, have to be given due importance before taking final decisions on current estimates. Trends and experiences are facts well established while estimates are projections only, through well intended, which may or may not

31

come true further, estimates are always coloured by subjective thinking of the estimator which can be made more objective by considering past and current trends and experience in similar circumstances. It only means that, realistic and sustainable improvements should improvements should be planned and executed.

SCOPE: The scope of operation costing is very wide and includes the following.

Where there is only one process or operation (unit costing)

When they concern rendering some services rather than manufacturing the goods called service costing (operating cost)

When in one process there are different operations which are to be performed to convert the raw material into finished product (operating costing)

When the raw material in order to be converts or into finished products has to per certain stages or process called process costing.

1. ONE OPERATING (UNIT) COSTING: This is a method of costing by units of production and it

adopted where production is uniform and a continuous affair, units of output are identical and the cost units are physical and natural. The cost per unit is determined by dividing the total cost during a given period by the number of units produced during that period. This method of costing is generally adopted where an undertaking is engaged in producing only one type of product or two or more products of the same kind but of varying grades of quality. The industries where this method of costing is used are collieries,

32

sugar, mills, cement works, brick works, paper mills etc. In all these cases, work is a natural unit of cost.

2. OPERATING (SERVICE) COST:

Service costing is that form of operation costing which applies where standardized services are provided either by an undertaking or by a service cost center with in an undertaking. The method may be used where service is not completely standardized, but where it is continent to regard it is such, and to calculate average cost per period in relation to the standardized unit of measurement. Thus it is the cost of producing and maintaining a service. It is a method of costing applied to undertaking which provides service rather than production of commodities. The ices to be costed could either be:

1. Transport service:Tramways, Railways, Bus, Transport.

2. Supply service:Gas supply, Electricity supply, Water supply.

3. Welfare service:Hospitals, canteen, Libraries.

4. Municipal service:Street lighting, Road maintenance etc.

INPUT AND OUTPUT COSTS:

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Input costs are constantly changing, actually constantly rising. Further, due to recent change in favour of global market economy, the price of coal has to be competitive with imported coal of better quality. The market forces will, thus, restrict selling price of coal requiring mining to be more and more effective. A visible mine of today, therefore, may not be viable tomorrow due to rising input costs and limitations on raising coal price. The situation will require fresh look on the exiting system of mining to evolve a system that will keep the production costs contained. Planning, therefore, is a continuous process. Even profit earning mines should be given a fresh look every now and than for improving economics and reducing costs. Or else, they will also become uneconomic in near future.

In any activity, only a few key items constitute major share of costs. In opencasts. In opencast, the activities of drilling, blasting and transport are the key activities where attention should first be diverted. In medium mechanized underground mines, the important activities may be supports, coal availability for SDL/LHD and coal clearance. Costs of these key items have to be keenly and constantly watched and improved upon.

For any worthwhile assessment, it is very essential that item wise and activity wise cost data are correctly recorded, stored and analyzed. Further, they should be made available to the concerned executives at regular intervals and well in time before they become too old to be effective. If they data are not correctly recorded and timely furnished, improvements for cannot be properly planned and executed.

From the above, we can conclude that, while calculating economics and preparing estimates, we have to consider:

1. Nature of deposit

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2. Quantum of projected production and degree of mechanization. Effect of reduced or increased production than projected.

3. Requirement and availability of recourses and their phasing:i. Financial (including loan)

ii. Equipment (including hire), particularly from indigenous sources.

iii. Manpower (including contact). 4. Proximately of coal consumer and willingness to pay higher

price, if required.5. Capabilities of management.6. Law of land.7. Intrastate required and infrastructure available.8. Past trends and future projects.9. Social atmosphere and expectations of the people likely to be

disturbed.10. Possibilities of early return on capital and rate of return

on capital to be invested.11. Period for which a facility is to be created and the time

it takes to be created.

It will, thus, be seen that, economics of a mine is not a mere theoretical exercise. It is sum total of possibilities and restrictions.

7. Specimen of sheet or statement of cost:

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Particulars total cost (Rs) cost per unit (Rs)

DIRECT MATERIALSDIRECT LABOURDIRECTCHANGEABLE EXP

PRIME COSTADD:WORK OVERHEADS

WORKS COSTADD:

ADMINISTRATIONOVERHEADS

COST OFPRODUCTIONADD:

SELLING ANDDISTRIBUTIONOVERHEADS

TOTAL COST OFCOST OF SALES

XXXXXXXXX

XXX

XXX

XXX

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YEAR SIMPLEX EMICO TOTAL YEAR

2005-06 2 0 2 2006-07 6 1 7 2007-08 7 1 8 TOTAL 15 2 17

DEPLOYMENT OF SDLS IN UNDER GROUND MINES

Production capacity of SDL as per feasibility reports.

The production capacity of SDL of 1.0 cu.m. Bucket capacity is estimated at 100% performance level is 159 tones per day.

Actual production from SDL s:

Year wise deployment of SDL s and production is as follows:

YEAR SDL s PRODUCTION (T)

2006-07 2 44,290 2007-08 7 1,48,388 Total 9 3,98,455

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The average production in KTK 1 per SDL per day for the year 2007-08 is as follows.

MINE NO.OF SDL s

PRODUCTION (T)

PRODUCTION (T) PER DAY

KTK 1 3 98,120 119

Availability and utilization of SDL s:

Availability of SDL s is found to be 85.6%.

% of availability No. of SDL s More than 90 18 80 to 90 50 Less than 90 26

Percentage utilization of machine available hours (MAH) is furnished below and the overall utilization of SDL is found to be 39% of MAH i.e. 8 hours per day.

Utilization (%MAH) No. of SDL s More than 60 3 50 to 60 0 40 to 50 18 30 to 40 27 20 to 30 34

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Less than 20 12

Detailed analysis of the idle hours:

SDL s is idle for 52% of available time. The reasons for idleness are analyzed and furnished below:

1. Idle due to shift change 15%2. Idle due to roof supporting 19%

3. Idle due to machine shifting 3%4. Idle due to out by problem 15%

Total 52%

Man power:

Man power provided for SDL s in feasibility is as follows.

No of SDL s 2 3 4Man shifts 129 159 186Men in roll 156 185 217

The actual man shift booked are varying from 25 to 135 per SDL as there is no uniform practice of booking in different mines. The average is 58 man shifts per day per SDL

Description 2005-06 2006-07 2007-08No of H/S drills

33 31 31

No of SDL s 2 3 6Production (t) 11,41903 10,91,767 11,24,566Men in roll 7,897 8,033 7,542

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Cost of production from SDL s and Hand Section at company level:

The details of cost of production, ASR and profitability of Hand Section and SDL s at company level during the 2006-07 to 2007-08.

(a) Total cost of production:

Year No of SDL s Hand Section Rs. In Lakhs

SDL s RS in Lakhs

2006-07 2 22702.60 701.612007-08 7 26804.69 1273.70

(b) Cost of production:

Year Hand Section SDL s(RS)2005-06 1648.59 1132.132006-07 2173.59 1584.122007-08 2745.99 1588.77

(c) Average sales realization per tonne:

Year Hand Section (Rs In Lakhs)

SDL section (Rs in Lakhs)

2005-06 1,030.93 1,037.82 2006-07 1,078.00 1,043.45

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2007-08 1,129.23 1,068.85

(d) Profit/loss:

Year Hand Section (Rs in Lakhs)

SDL section (Rs in Lakhs)

2005-06 (-)7205.461 7.172006-07 (-)10728.24 (-)185.41152007-08 (-)11096.36 26.7169

The production and costs at RK-1 mine, Bhupalpally area for the year 2007-08.

Mine Production in tones Hand Section

Cost per tonne Hand Section

Production in tones SDl s

Cost per tonne SDL s RS.

RK- 1 9,76,141 2,745.99 80,169 1,58,877

The total activities at the mine are divided into 39 parts and each activity is given from 01 to 39 to ascertain the expenditure. The activity wise costs centers are shown below. The expenditure booked to the below cost centers is treated as direct cost incurred at the time.

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Similarly to ascertain the expenditure on various surface cost codes from 40 to 102 are allocated which are used to book the expenditure on the activities on the service and administrative department etc. the expenditure incurred at workshop. CSP and G.M. office etc are the examples of the indirect cost booked through below cost centers.

The indirect cost is grouped into 2 parts for the presentation in the mine cost sheet. They are overheads and area overheads. The mine overhead, while represents the incidental, costs to the direct wages like LTC/ LLTC, leave enhancement, women compensation free issue of gas etc. paid to the employees have been taken as direct expenditure and the actuarial provision of been taken as direct expenditure and the actual provision of Gratuity allocated to the mine is treated as mine overheads and apportioned on the basis of production as per the procedure.

Thus, the total cost of production is ascertained by way of allocation of direct expenditure and apportionment of overhead costs books through various cost centers. The expenditure thus ascertained is divided with the production to arrive at the cost of production per tonne. The profit/ loss is the difference the average sales realization plus surface transport charges and total cost of production.

COST CODE COST DIRECTIONUNDER GROUND01 COAL CUTTING02 COAL BLASTING03 COAL FILLING04 COAL HAULAGE AND TRAMMING

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05 PLATE LAYING AND BLASTING07 PUMPING08 SUPERVISORYAND SURVEY08 VENTILATION AND SANITSTION10 PROVING FAULT11 DAILY MAZDOORS12 MAINTANCE AND REPAIR

13 TIMERING AND ROOF SUPPORT14 ROOF SUPPORT -STEEL15 ROOF SUPPORT-GRIDERS20 MACHINEMINING-CUTTING21 MACHINE MINING-FILLING22 MNE MINING- CONVEYING ROAD HAUL

DUMPERS 25 AM- 5026 LONG WALL EXPENDITURE28 PROSPECTING29 SAFTY30 HAULAGE(SURFACE)31 COAL TRANSPORT BY CONTRACTERS32 COAL TRANSPORT BY COMPANY

LOORIES33 PLATE LAINING AND BLASTING34 MAINTANCE AND REPAIRS (SURFACE)35 TUB REPAIRING36 MINE ADMINISTRSTION- PIT OFFICE37 SAND GATHERING STATION AREIAL

ROPE WAY AND UNDER GROUND SHOWING

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38 TRANSPORT CAR & JEEEPS (MINES)39 OTHERS83 CANTEEN

STATEMENT SHOWING THE OPERATION COSTS

OF BHOOPALPALLY AREA FOR 2008-09PARTICULARS RS. IN

LAKHSRS./ MTS

RS. IN LAKHS

RS./MTN % of OC to TC

Total cost of 2580.93 240.01 100%

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productionLess:Interest 4.66 0.43 0.18%

2576.27 239.57 99.82%Less:overheadsAre overheads 276.25 25.68 10.70%

2300.02 213.88 89.12%Less:Indirect cost forWork shop 10.02 0.93CSP 1.21 0.11 11.23 1.04 0.44%

2288.79 212.83 88.68%Less:Coal transport cost:Coal transport contract

31.73 2.95 1.23%

TOTAL OPERATING COST

2257.06 209.88 87.45%

Total Output: 10.75360

Total % of Operating costs in total production cost is Total operating cost/ Total cost of production. i.e.,

(2257.06/2580.93)*100=87.45%

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LAKHSRS./ MTS

RS. IN LAKHS


Total cost of production

2658.16 251.64 100%

Less:Interest 1.22 0.115 0.05%




94.05 8.90 3.54%


1984.45 187.875 74.65%

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Total % of Operating costs in total production cost is Total operating cost? Total cost of production. i.e.,

(1984.45/2658.16)*100=74.65%



LAKHSRS./ MTS

RS. IN LAKHS



2149.61 197.4 100%



1669.5 153.3 77.66%Less:

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Indirect cost forWork shop 27.63 2.5CSP 10.33 0.94 37.96 3.48 1.76%


96.72 8.88 4.59%


1534.88 140.95 71.40%



(1534.88/2149.61)*100=71.40%


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LAKHSRS./ MTS

RS. IN LAKHS



1638.10 143.45 100%





86.51 7.58 5.28%


1243.35 108.9 75.90%



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(1243.35/1638.10)*100=75.90%



LAKHSRS./ MTS

RS. IN LAKHS



1655.13 169.04 100%




1205.59 123.13 72.84%Less:

50

Coal transport cost:Coal transport contract

68.58 7.00 4.14%


1137.01 116.13 68.70%



(1137.01/1655.13)*100=68.70%

CONCLUSIONS

One of the objectives of introducing SDL s is to save manpower and thereby reducing the cost of production. A study of technology wise cost sheet shows that SDL s technology. In the

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present 2007-08 the SIMPLEX provides 6, EMICO-1 in 2006-07 SIMPLEX-2 and EMICO– nill. The production capacity of SDL s of 1.0.cu.m. and the actual production from SDL s for year 2007-08 is 205777 which was increased compared to 2006-07. The average production per day for the year 2007-08 is 119 tonnes.

The availability and utilization of SDL s is found to be 85.6% and Man Power is 39% where the Idle Hours are 52% the average Man Shifts per day of SDL is 58.cost of production from SDL s and Hand Section at company level for the year 2007-08 is no. SDL s is 7 and Hand Section production is 26804.69 lakhs and 1273.70 lakhs. The profit/loss of Hand Section is (-) 11096.36 and SDL is 26.7169.

The total operating cost is 2257.06 with the total output of 10.75360 by which the operating cost to total cost % is 87.45 in the year 2008-09. The total operating cost is 1984.45 with the total output of 10.56310 by which operating cost to total cost % is 74.65 in the 2007-08. In 2006-07 the total output production is 10.388767 and the total cost % is 71.40%. In 2005-06 the total output production is 11.41903 and the total cost % is 75.90%. In the year of 2004-05 the % is 68.70% with the total output production of 9079111.

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SUGGESTIONS

The operating cost in the underground mines can be reduced by…

Controlling the ratio of absenteeism of employees. Decreasing the company losses by the effective

utilization of resources. Reduce the cost of area. Reduce the area overheads. Increase the production which can be done by the

increase the mechanization in the total production process.

Reduce the indirect cost of workshop and CSP. Reduce the cost of transport contract.

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operating cost

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