19072comp Sugans Pe2 Costacc Cp9

9Operating Costing

Question 1Distinguish between Operating Costing and Operation Costing.

AnswerOperating 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 renderingservices rather than on the cost of manufacturing a product. It is applied by transportcompanies, gas and water works, electricity supply companies, canteens, hospitals, theatres,school etc. Within an organisation itself certain departments too are known as servicedepartments 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 operationinstead of each process of stage of production is separately costed. This may offer betterscope for control. At the end of each operation, the unit operation cost may be computed bydividing 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 factorysite. Transportation of Furnace Oil is made by the Company's own tank lorries of 5 tonscapacity each. Onward trips are made only on full load and the lorries return empty. Thefilling-in time takes an average 40 minutes for Indian Oil and 30 minutes for BharatPetroleum. But the emptying time in the factory is only 40 minutes for all. From therecord available it is seen that the average speed of the company's lorries works out to24 miles per hour. The varying operating charges average 60 paise per mile covered andfixed charges give an incidence of Rs. 7.50 per hour of operation. Calculate the cost perton mile for each source.

Cost Accounting9.2

AnswerOperating Costs are the costs incurred by undertakings which do not manufacture anyproduct but provide a service. Such undertakings for example are — Transport concerns,Gas agencies; Electricity Undertakings; Hospitals; Theatres etc. Because of the variednature of activities carried out by the service undertakings, the cost system used isobviously 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 andaccessories, overhaul, etc.

(c) Fixed or standing charges. These includes garage rent, insurance, roadlicence, 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.Statement showing the cost per ton mile of carrying furnace oil from Indian Oiland Bharat Petroleum Depots to Chemical Factory

Indian Oil Bharat PetroleumRs. 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 23.35Cost per ton-mile 53 paise (Approx.) 58.00 paise (Approx)

Working Notes Indian Oil Bharat Petroleum

1. Distance of Oil Depotsfrom Chemical Factory:Mileage covered under one trip by a lorryVariable cost of operating @ 60 paiseper mile

12 miles

24 milesRs. 14.40

8 miles

16 milesRs. 9.60

Operating Costing 9.3

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

60 minutes 40 minutes

Filling in time 40 minutes 30 minutesEmptying time 40 minutes 30 minutesTotal time 140 minutes 140 minutesFixed charges @ Rs. 7.50 per hour Rs. 17.50 Rs. 13.75

3. Load carried by tank lorries 5 tones 5 tonesTotal 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 3Write short note on operation costing. (May, 1996, 4 marks)

AnswerOperation 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 thoseindustries where a process consists of distinct operations, the method of costing applied orused is called operation costing. Operation costing offers better scope for control. It facilitatethe computation of unit operation cost at the end of each operation by dividing the totaloperation 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 lesscontinuous operations, or processes to which costs are charged before being averaged overthe units produced during the period. The two costing methods included under this head areprocess costing and service costing.Question 4

SMC is a public school having five buses each plying in different directions for thetransport of its school students. In view of a large number of students availing of the busservice, the buses work two shifts daily both in the morning and in the afternoon. The busesare garaged in the school. The work-load of the students has been so arranged that in themorning the first trip picks up the senior students and the second trip plying an hour later picks

Cost Accounting9.4

up the junior students. Similarly in the afternoon the first trip drops the junior students and anhour later the second trip takes the senior students home.

The distance travelled by each bus one way in 8 kms. The school works 25 days in amonth and remains closed for vacation in May, June and December. Bus fee, however, ispayable 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 driverCleaner'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 annumInsurance Rs. 1,000 per bus per annumRepairs & Maintenance Rs. 3,500 per bus per annumPurchase price of bus(Life 12 years)

Rs. 1,50,000 each

Scrap value Rs. 30,000Diesel 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 thiscategory. Ignore interest. Since the charges are to be based on average cost, you are requiredto:(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

AnswerSMC Public School

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

No. Rs. No. Rs.Driver's salaryCleaner's salary

450 p.m.350 p.m.

11/5

5,400840

51

27,0004,200


Licence fee, taxes etc.InsuranceRepairs & MaintenanceDepreciationDiesel (See Note 1)TotalCost per monthNo. of students on half feebasis (see Note 2)Cost per student (half fee)Cost per student (full fee)

860 p.a.1,000 p.a.3,500 p.a.

10,000 p.a.

8601,0003,500

10,0007,200

28,8002,400

150Rs. 16.00Rs. 32.00

4,3005,000

17,50050,00036,000

1,44,00012,000

750Rs. 16.00Rs. 32.00

Working Notes1. 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./litreDiesel 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 busBus 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 tripTotal number of half fare students in two trips 150 students.On full fare basis, number of students in two trips 75 students.

Question 5SHANKAR 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 annualcost of insurance and taxes are Rs. 4,500 and Rs. 900 respectively. He has to pay Rs. 500per month for a garage where he keeps the car when it is not in use. The annual repair costs

Cost Accounting9.6

are estimated at Rs. 4,000. The car is estimated to have a life of 10 years at the end of whichthe scrap value is likely to be Rs. 50,000.

He hires a driver who is to be paid Rs. 300 per month plus 10% of the takings ascommission. 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 25days 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.DepreciationInsuranceTaxesGarage (Rs. 500 × 12)Annual repairsDriver's Salary (Rs. 300× 12)Incidental expenses (Rs. 200 × 12)

10,0004,500

9006,0004,0003,6002,400

31,400 2,616.67

Variable expensesPetrol and Oil : 4,000.00

(4,000*kms × 100100

1 .Rs.kms )

Total Cost (without commission) 6,616.67Let 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 abus. The bus costs the company Rs. 1,00,000. It has been insured at 3% per annum. Theannual road tax amounts to Rs. 2,000. Garage rent is Rs. 400 per month. Annual repair isestimated 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 respectivelyin addition to 10% of takings as commission to be shared equally by them. The manager'ssalary is Rs.1,400 per month and stationery will cost Rs. 100 per month. Petrol and oil costRs. 50 per 100 kilometers. The bus will make three round trips per day carrying on an average40 passengers in each trip. Assuming 15% profit on takings and that the bus will ply on anaverage 25 days in a month, prepare operating cost statement on a full year basis and alsocalculate the bus fare to be charged from each passenger per kilometer.

AnswerUnion Transport Company

Statement showing Operating Cost of the bus per annum

A. Fixed ChargesRs.

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

Cost Accounting9.8

Insurance 3,000(3% of Rs. 1,00,000)Garage rent 4,800(Rs. 400 x 12)Stationery 1,200(Rs. 100 × 12)Depreciation 20,000(Rs. 1,00,000/5 years)

57,400B. Maintenance Costs

Repairs 2,360C: Running Charges

Petrol and Oil (36,000 Km* × Rs. 50)/100 18,000Total Cost (A + B + C): 77,760

Add: 10 percent of takings for commission of Driver andConductor 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 chargedEffective 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 Paiseeach passenger (Rs. 1,03,680/14,40,000)

Question 7A company is considering three alternative proposals for conveyance facilities for its

sales personnel who have to do considerable travelling, approximately 20,000 kilometersevery 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 ProposalsI II III

Use of Concern'sCar

Use of ownCar Use of hire Car

Rs. Rs, Rs.Re-imbursementof 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 Costper car per km. (C)Petrol 0.60 — 0.60Repairs and maintenance 0.20 — —Tyre 0.12 — 0.12

Cost Accounting9.10

Total cost: per km. (A + B + C) 1.82 1.66 1.76Cost 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 alternativeproposals III I II

Decision: Use of own car by Sales Executives will be the most economical proposal from theConcern's point of view. Hiring of car, for the use of Sales Executives will be theIInd best choice and maintaining a fleet of cars for its executives will be the costliestalternative.

Question 8Prakash 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 andmakes the journey twice a day fully loaded on the outward journeys and empty on returnjourneys. The following information is available for a Four Weekly period during the year1990:–

Petrol consumption 8 kilometers per litrePetrol cost Rs. 13 per litreOil Rs. 100 per weekDriver's wages Rs. 400 per weekRepairs Rs. 100 per weekGarage rent Rs. 150 per weekCost of Lorry (Excluding Tyres) Rs. 4,50,000Life of Lorry 80,000 kilometresInsurance Rs. 6,500 per annumCost of Tyres Rs. 6,250Life of Tyres Rs. 25,000 kilometresEstimated sale value of Lorry at the end of its life Rs.50,000Vehicle Licence Cost Rs. 1,300 per annumOther overhead cost Rs. 41,600 per annumThe 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 400Driver's wages 1,600Repairs 400Tyre Cost 800(Refer to Note 2)Depreciation 16,000(Refer to Note 3)Total running cost (A) 24,400

Fixed CostsGarage rent 600Insurance 500(Refer to Note 4)Licence Cost 100(Refer to Note 5)Other Overhead 3,200(Refer to Note 6)Total Fixed Cost (B) 4,400Total 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 Note1. 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.

Cost Accounting9.12

= Rs. 5,2002. Total distance travelled in

4 weeks = 3,200 km.

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

km200,3250,6.Rs

= Rs. 8003. Cost of Lorry = Rs. 4,50,000

Estimated sales value of lorryat the end of its life = Rs. 50,000Life 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. 3,200Question 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 wayNumber of days run each month: 8Seating capacity occupied 90%

(ii) Delhi to Agra and back, the same day.Distance covered : 120 kms. One wayNumber of days run each month: 10Seating capacity occupied 85%

(iii) Delhi to Jaipur and back, the same dayDistance covered: 270 kms. one way.


Number of days run each month: 6Seating capacity occupied 100%

(iv) Following are the other details:Cost of the bus Rs. 6,00,000Salary 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 litreRoad 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 passengerfor the journeys:

(i) Delhi to Chandigarh(ii) Delhi to Agra(iii) Delhi to Jaipur

AnswerWorking Notes(1) Total running Kms per month:

Km. pertrip

Trips perday

Days permonth

Km. permonth

Delhi to ChandigarhDelhi to AgraDelhi to Jaipur

150120270

222

8106

2,4002,4003,2408,040

Cost Accounting9.14

(2) Passenger Kms. per month:Total seatsavailable

per month

Capacityutilized

% Seats

Km.pertrip

PassengerKms. per

monthDelhi 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 DriverSalary of ConductorSalary of the part-time accountant

2,8002,200

200

Depreciation (Rs.6,00,000×121

10020

) 10,000

Insurance (Rs.4,800 × 1/12) 400Road Tax (Rs. 1,500 × 1/12) 125Repairs and maintenance 1,000Permit Fee 315 _____Total fixed expenses 17,040Variable 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 29,904Profit and passenger tax together accountsfor 50% of total taking p.m. or 100% of cost

29,904______

Total takings 59,808Passenger tax (20% of takings) 11,961.60Profit (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 chargedDelhi to Chandigarh, per passenger = 150 Kms. × 0.16 = Rs. 24Delhi to Agra, per passenger = 120 Kms. × 0.16 = Rs. 19.20Delhi to Jaipur, per passenger = 270 Kms. × 0.16 = Rs. 43.20Question 10

A Mineral is transported from two mines – 'A' and 'B' and unloaded at plots in a RailwayStation. Mine A is at a distance of 10 kms, and B is at a distance of 15 kms. from railheadplots. A fleet of lorries of 5 tonne carrying capacity is used for the transport of mineral from themines. Records reveal that the lorries average a speed of 30 kms. per hour, when running andregularly take 10 minutes to unload at the railhead. At mine 'A' loading time averages 30minutes 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 houroperated. 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 eachmine. (Nov. 2000, 8 marks)

AnswerStatement showing the cost per tonne-kilometer of

carrying mineral from each mineMine A

Rs.Mine B

Rs.Fixed cost per trip(Driver's wages, depreciation, insuranceand taxes)A: 1 hour 20 minutes @ Rs. 9 per hour 12B: 1 hour 30 minutes @ Rs. 9 per hour 13.50(Refer to working note 1)Running and maintenance cost:(Fuel, oil, tyres, repairs andmaintenance)A: 20 kms Rs. 1.20 per km. 24B: 30 kms. Rs. 1.20 per km. ___ 36.00

Cost Accounting9.16

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

Working notesMine A Mine B

1. Total operated time taken per tripRunning time to & fro 40 minutes 60 minutes

kms30utesmin60.kms20

kms30utesmin60.kms30

Unloading time 10 minutes 10 minutesLoading time 30 minutes 20 minutesTotal operated time 80 minutes or 90 minutes or

1 hour 20 minutes 1 hour 30 minutes2. Effective tones – kms 50 75

(5 tonnes × 10 kms) (5 tonnes × 15 kms.)

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

Operation No. Time per article Grade of worker Wage rate per hour12345

15 minutes25 minutes10 minutes30 minutes20 minutes

ABCDE

Re. 0.65Re. 0.50Re. 0.40Re. 0.35Re. 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 targetedoutput. (May 1996, 7 marks)

AnswerStatement 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 weekRs.

Labour cost perdozen

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 NoteOperation No. No. of operators required

16015

4012dozens600

= 45

26025

4012dozens600

= 75

36010

4012dozens600

= 30

46030

4012dozens600

= 90

56020

4012dozens600

= 60

Question 12A 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 gettingreloaded with 8 tonnes of goods at station R. The distances between P to Q, Q to R and thenfrom R to P are 40 kms, 60 kms, and 80 kms, respectively. Compute 'Absolute tonne-km' and'Commercial tonne-km'. (May, 1995, 4 marks)

AnswerAbsolute 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(

Cost Accounting9.18

= 8 tonnes × 180 kms= 1,440 tonnes-kms

Note: It may be noted that while calculating the absolute tonnes – kms, the travel betweenany two stations is considered individually, while in the case of commercial tonne-kms, the trip is considered as a whole.

Question 13EPS 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 busservice, the buses work two shifts daily both in the morning and in the afternoon. The busesare garaged in the school. The workload of the students has been so arranged that in themorning, the first trip picks up senior students and the second trip plying an hour later picks upjunior students. Similarly, in the afternoon, the first trip takes the junior students and an hourlater 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 amonth and remains closed for vacation in May and June. The bus fee, however, is payable bythe 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 annumInsurance Premium Rs. 15,600 per bus per annumRepairs and Maintenance Rs. 16,400 per bus per annumPurchase price of the bus Rs. 16,50,000 eachLife of the bus 16 yearsScrap value Rs. 1,50,000Diesel Cost Rs. 18.50 per litreEach 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 anddropped within the range of

distance from the school

Bus fee Percentage of studentsavailing this facility

4 kms8 kms16 kms

25% of Full50% 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(i) EPS Public School

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

Particulars Per busper annum

(Rs.)

Fleet of 25 busesper annum

(Rs.)Running costs : (a)Diesel(Refer to working note 1)Repairs & maintenance costs: (B)Fixed charges:Driver's salaryCleaners salaryLicence fee, taxes etc.InsuranceDepreciationTotal fixed charges: (C)Total expenses: (A+B+C)

56,832

16,400

60,0007,2002,300

15,60093,750

1,78,8502,52,082

14,20,800

4,10,000

15,00,0001,80,000

57,5003,90,000

23,43,75044,71,25063,02,050

Cost Accounting9.20

(ii) Average cost per student per month in respect of students coming from a distanceof:

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 4Distance 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 students1/4th fare students 18 students(15% × 120 students)½ fare 30% students (equivalent to 1/4th fare students) 72 studentsFull fare 55% students (equivalent to 1/4 th fare students) 264 studentsTotal 1/4th fare students 354 students


Question 14A 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 andreturn empty. The distance travelled, number of trips made and the load carried per day byeach truck are as under:

Truck No. One wayDistance Km

No. of tripsper day

Load carriedper trip / day

tonnes123

164030

423

698

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

Year Total distancetravelled

Maintenance CostRs.

12

1,60,2001,56,700

46,05045,175

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 monthLicence and taxes : Rs. 5,000 per annum per truckInsurance : 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 annumThe 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)

Cost Accounting9.22

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. 25Maintenance 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 trucksLicence and taxes 15,000Insurance 5,000Depreciation 87,000(Rs. 2,90,000/10 years) × 3 trucksGeneral overhead 11,084Total 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

yearTruck

numberOne way

distance inkms

No. of trips Totaldistance

covered inkm per day

Load carriedper trip / day

in tonnes

Totaleffective

tonnes km

123

Total

164030

423

128160180468

698

384720720

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. 0.25Fixed maintenance cost = Total maintenance cost–Variable maintenance cost

= Rs. 46,050 – 1,60,200 kms × 0.25= Rs. 6,000

Question 15Global 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 inthese rates is made for any delivery of goods at intermediate station 'C'. In January 1997 thetruck made 12 outward journeys for city 'B' with full load out of which 2 tones were unloadedtwice in the way of city 'C'. The truck carried a load of 8 tons in its return journey for 5 timesbut once caught by police and Rs.1,200 was paid as fine. For the remaining trips the truckcarried full load out of which all the goods on load were unloaded once at city 'C'. The distancefrom city 'A' to city 'C' and city 'B' are 140 kms and 300 kms respectively. Annual fixed costsand maintenance charges are Rs. 60,000 and Rs. 12,000 respectively Running charges spentduring January, 1997 are Rs. 2,944.

Cost Accounting9.24

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 StatementM/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 8,944Cost 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 3,224Working Notes1. 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 – kms2. Return journeys:

(i) From city B to city A:5 journeys × 300 kms × 8 tons. = 12,000 tons – kms6 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 – kms3. 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 13,368Less: Fine paid 1,200Net revenue received 12,168

Question 16A 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 obtainedfrom their books for April, 1998:

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

1,39,000

Cost Accounting9.26

Actually, passengers carried were 75 percent of seating capacity. All buses ran on all days ofthe month. Each bus has made one round trip per day.Find out the cost per passenger km. (Nov., 1998, 10 marks)

AnswerOperating cost statement for the month of April, 1998

AmountParticularsRs. Rs.

A. Standing chargesWages of drivers, conductors and cleanersSalaries of office staffTaxation, insurance etc.Interest and other expenses

24,00010,00016,00020,000 70,000

B. Running & maintenance costRepairs and maintenanceDiesel oil and other oilDepreciation

8,00035,00026,000 69,000

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

(Rs. 1,39,000/5,62,500 passenger kms)(Refer to working note)

Working notePassenger Kms.: No. of Buses × Distance in × Seating × Percentage × No. of days

one round capacity seating in a monthtrip per day available capacity

in each actuallybus used in

each bus = 5 Buses × 50 Kms. × 2 × 50 passengers × 75% × 30 days = 5,62,500 Kms.

Question 17In 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 seatscapacity. The normal occupancy is estimated at 60% through out the year of 52 weeks. Theone-way fare is Rs. 7,200. The cost of operation of flights are:


Fuel cost (variable) Rs. 96,000 per flightFood served on board on non-chargeable basis Rs. 125 per passengerCommission 5% of fare applicable for all booking

Fixed cost:Aircraft lease Rs. 3,50,000 per flightLanding 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 beimplemented or not. (3+2=5 marks)

Answer

No. of passengers 16060/100 = 96 Rs Rs.(i) Fare collection 967,200 6,91,200

Variable costs:Fuel 96,000Food 96125 12,000Commission 5% 34,560Total variable Costs 1,42,560Contribution per flight 5,48,640Fixed costs: Lease 3,50,000Crew 72,000 4,22,000Net income per flight 1,26,640

(ii) Fare collection 1086,720 7,25,760Variable costs:Fuel 96,000Food 108125 13,500Commission @ 5% 36,288Contribution 5,79,972

There is an increase incontribution by Rs. 31,332.Hence the proposal isacceptable

Cost Accounting9.28

Question 18A Club runs a library for its members. As part of club policy, an annual subsidy of uptoRs. 5 per member including cost of books may be given from the general funds of theclub. The management of the club has provided the following figures for its librarydepartment.

Number of Club members 5,000

Number of Library members 1,000

Library fee per member per month Rs. 100

Fine for late return of books Re. 1 per book per day

Average No. of books returned late per month 500

Average No. of days each book is returned late 5 days

Number of available old books 50,000 books

Cost of new books Rs. 300 per book

Number of books purchased per year 1,200 books

Cost of maintenance per old book per year Rs. 10

Staff details No. Per Employee

Salary per month (Rs.)

Librarian 01 10,000

Assistant Librarian 03 7,000

Clerk 01 4,000You are required to calculate:(i) the cost of maintaining the library per year excluding the cost of new books;(ii) the cost incurred per member per month on the library excluding cost of new books;

and(iii) the net income from the library per year.

If the club follows a policy that all new books must be purchased out of libraryrevenue (a) What is the maximum number of books that can be purchased per yearand (b) How many excess books are being purchased by the library per year?

Also, comment on the subsidy policy of the club. (May 2007, 10 Marks)


AnswerComputation of total revenueNo. of library members No 1,000Library fees per month Rs. 1,00,000Late fees per month (500 5 1) Rs. 2,500Total Revenue per month Rs. 1,02,500Total Revenue per annum (1,02,500 12) Rs. 12,30,000Computation of total costStaff details No. Salary per

monthTotal cost

Rs. Rs.Librarian 1 10,000 10,000Assistant Librarian 3 7,000 21,000Clerk 1 4,000 4,000Total Staff cost per month 35,000Total Staff cost per year (35,000 12) 4,20,000

No. Cost per bookBooks maintenance cost 50,000 Rs. 10 5,00,000Total maintenance cost per annumexcluding cost of new books (4,20,000 +5,00,000)

9,20,000

Cost incurred per library member per annum(Rs. 9,20,000/1,000) Rs. 920Cost incurred per member per month on the libraryexcluding cost of new books (920/12) Rs. 76.67Cost incurred per club member per annum(9,20,000/5,000) Rs. 184Cost incurred per club member per month (184/12) Rs. 15.33Net income from the library per annum(12,30,000 – 9,20,000) Rs. 3,10,000Cost per new book Rs. 300Maximum number of new books per annum(3,10,000/300) No. 1033.333

Cost Accounting9.30

Present number of books purchased No. 1200Excess books purchased (1200 – 1033.333) No. 166.6667Subsidy being given per annum Rs. 50,000Subsidy per library member per annum (50,000/1,000) Rs. 50Subsidy per club member per annum (50,000/5,000) Rs. 10

Comment:The club is exceeding its subsidy target to members by Rs. 45 (Rs. 50 – 5) per librarymember and Rs. 5 (Rs. 10 – 5) per club member.

Question 19A company runs a holiday home. For this purpose, it has hired a building at a rent of Rs.

10,000 per month alongwith 5% of total taking. It has three types of suites for itscustomers, viz., single room, double rooms and triple rooms.Following information is given:

Type of suite Number Occupancy percentageSingle room 100 100%Double rooms 50 80%Triple rooms 30 60%The rent of double rooms suite is to be fixed at 2.5 times of the single room suite and thatof triple rooms suite as twice of the double rooms suite.The other expenses for the year 2006 are as follows:

Rs.Staff salaries 14,25,000Room attendants’ wages 4,50,000Lighting, heating and power 2,15,000Repairs and renovation 1,23,500Laundry charges 80,500Interior decoration 74,000Sundries 1,53,000Provide profit @ 20% on total taking and assume 360 days in a year.You are required to calculate the rent to be charged for each type of suite.

(May 2007, 10 Marks)


Answer(i) Total equivalent single room suites

Nature of suite Occupancy Equivalent singleroom suites

Single room suites 100 360 100% = 36,000 36,000 1 = 36,000Double rooms suites 50 360 80% = 14,400 14,400 2.5 = 36,000Triple rooms suites 30 360 60% = 6,480 6,480 5 = 32,400

Total 1,04,400

(ii) Statement of total cost:Rs.

Staff salaries 14,25,000Room attendant’s wages 4,50,000Lighting, heating and power 2,15,000Repairs and renovation 1,23,500Laundry charges 80,500Interior decoration 74,000Sundries 1,53,000

25,21,000Building rent 10,000 12 + 5% on total taking 1,20,000

+ 5% on takingsTotal cost 26,41,000 + 5% on

total takings

Profit is 20% of total takings Total takings = Rs. 26,41,000 + 25% of total takingsLet x be rent for single room suiteThen 1,04,400 x = 26,41,000 + 25% of (1,04,400 x)or 1,04,400 x = 26,41,000 + 26,100 xor 78,300 x = 26,41,000or x = 33.73

Cost Accounting9.32

(iii) Rent to be charged for single room suite = Rs. 33.73 Rent for double rooms suites Rs. 33.73 2.5 = Rs. 84.325Rent for triple rooms suites Rs. 33.73 5 = Rs. 168.65

Question 20A transport company has 20 vehicles, which capacities are as follows:

No. of Vehicles Capacity per vehicle5 9 tonne6 12 tonne7 15 tonne2 20 tonne

The company provides the goods transport service between stations ‘A’ to station ‘B’.Distance between these stations is 200 kilometres. Each vehicle makes one round tripper day an average. Vehicles are loaded with an average of 90 per cent of capacity atthe time of departure from station ‘A’ to station ‘B’ and at the time of return back loadedwith 70 per cent of capacity. 10 per cent of vehicles are laid up for repairs every day.The following informations are related to the month of October, 2008:

Salary of Transport Manager Rs. 30,000Salary of 30 drivers Rs. 4,000 each driverWages of 25 Helpers Rs. 2,000 each helperWages of 20 Labourers Rs. 1,500 each labourerConsumable stores Rs. 45,000Insurance (Annual) Rs. 24,000Road Licence (Annual) Rs. 60,000Cost of Diesel per litre Rs. 35Kilometres run per litre each vehicle 5 Km.Lubricant, Oil etc. Rs. 23,500Cost of replacement of Tyres, Tubes, other parts etc. Rs. 1,25,000Garage rent (Annual) Rs. 90,000Transport Technical Service Charges Rs. 10,000Electricity and Gas charges Rs. 5,000Depreciation of vehicles Rs. 2,00,000


There is a workshop attached to transport department which repairs these vehicles andother vehicles also. 40 per cent of transport manager’s salary is debited to the workshop.The transport department is charged Rs. 28,000 for the service rendered by theworkshop during October, 2008. During the month of October, 2008 operation was 25days.

You are required:

(i) Calculate per ton-km operating cost.(ii) Find out the freight to be charged per ton-km, if the company earned a profit of 25

per cent on freight. (November 2008 8 marks)

Answer(i) Operating Cost Sheet

for the month of October, 2008

Particulars Amount(Rs.)

A. Fixed Charges:

Manager’s salary:1006030,000Rs.

18,000

Drivers’ Salary : Rs. 4,000 30 1,20,000Helpers’ wages : Rs. 2,000 25 50,000Labourer wages : Rs. 1,500 20 30,000

Insurance :1224,000Rs. 2,000

Road licence :1260,000Rs. 5,000

Garage rent:1290,000Rs. 7,500

Transport Technical Service Charges 10,000Share in workshop expenses 28,000Total (A) 2,70,500

B. Variable Charges:Cost of diesel 12,60,000Lubricant, Oil etc. 23,500

Cost Accounting9.34

Depreciation 2,00,000Replacement of Tyres, Tubes & other parts 1,25,000Consumable Stores 45,000Electricity and Gas charges 5,000Total (B) 16,58,500

C. Total Cost (A + B) 19,29,000D. Total Ton-Kms. 18,86,400E. Cost per ton-km. (C/D) 1.022

(ii) Calculation of Chargeable Freight

Cost per ton-km. Rs. 1.022Add: Profit @ 25% on freight or 33⅓% on cost Re. 0.341Chargeable freight per ton-km. Rs. 1.363 or Rs. 1.36

Workings:1. Cost of Diesel:

Distance covered by each vehicle during October, 2008 = 200 2 25 90/100 = 9,000 km.

Consumption of diesel = litres.36,0005

209,000

Cost of diesel = 36,000 Rs. 35 = Rs. 12,60,000.2. Calculation of total ton-km:

Total Ton-Km. = Total Capacity Distance covered by each vehicle Average Capacity Utilisationratio.

= 2

70%90%9,00020215712695

= 80%9,000401057245

= 262 9,000 80%.= 18,86,400 ton-km.

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