INTRODUCTION TO OPERATING COSTINGOperatingcostingisamethodofcostingappliedbyundertakingswhichprovideservicerather thanproductionof commodities. Likeunit costingandprocess costing,operating costing is thus a form of operation costing.The emphasis under operating costing is on the ascertainment of cost of renderingservicesrather thanonthecost of manufacturingaproduct. It isappliedbytransportcompanies, gas and water works, electricity supply companies, canteens, hospitals,theatres, school etc.Withinanorganizationitselfcertaindepartmentstooareknownasservice departments which provide ancillary services to the production departments. ore!ample" maintenance department# power house# boiler house# canteen# hospital# internaltransport.Operationcostingoffersbetterscopeforcontrol. Itfacilitatesthecomputationofunit operation cost at the end of each operation by dividing the total operation cost by totalinput units. It is the category of the basic costing method, applicable, where standardizedgoods or services result froma se$uence of repetitive andmore or less continuousoperations, or processes to which costs are charged before being averaged over the unitsproduced during the period. The two costing methods included under this head are processcosting and service costing.%I&' hasdefined(Operating%osting) *'sthatformofoperationcostingwhichapplies when standardized services are provided either y an undertaking or by a servicecost center within an undertaking+.%ost 'ccounting,tandard-.byI%W'defines (Operating%ost)*'s thecostincurred in conducting a business activity. Operating costs refer to the cost of undertakings,which do not manufacture any product but which provide services+../ecause of the varied nature of activities carried out by the service undertaking, thecost system used is obviously different from that followed in manufacturing concerns.The essential features of operating costs are as follows".. The operating costs can be classified under three categories. or e!ample in the caseof transport undertaking these three categories are as follows" Operatingandrunningcharges:It includes e!penses of variable nature. ore!ample e!penses on petrol, diesel, lubricating oil, and grease etc. Maintenance charges: These e!penses are of semi0variable nature and include thecost of tyres and tubes, repairs and maintenance, spares and accessories, overhaul,etc. Fixedrstandingcharges:Theseincludesgaragerent, insurance, roadlicense,depreciation, interest on capital, salary of operating manager, etc.1. The cost unit used is a double unit like passenger0mile# 2ilowatt0hour, etc. It can beimplementedinall firms of transport, airlines, bus0service, etc., andbyall firms of3istribution 4ndertakings.1APP!ICATION OF OPERATING COSTING1. Transprt Ser"ice: 4nder this method of costing, the operating cost of each vehicleisdetermined. Thecommonunit of serviceistonnekilometer incaseofgoodstransport, andpassenger kilometer incase of passenger transport. 5!amples oftransport service are Truck operators, road transport, 6ailways, 'irlines, etc.2. Supp#$ser"ice:Itincludesserviceslikeelectricity,steam, gas, water,etc. wheresteam is used for the purpose of generating electricity, it is possible to compute thecost of electricity generated by aggregating the steam production costs with otherrelated cost of electricity generation. ' cost unit is generally in terms of kilograms.3. %e#&areSer"ices:It includesserviceslikecanteen, hospital, library,etc. 7otels,restaurants employ operating costing. The total operation of a hotel can be dividedinto number of cost centers like 6estaurant, 7ousekeeping, Laundry, etc. The costunit is generally in terms of per meal8 dish.COST UNIT:or ascertaining costs, it is necessary to decide suitable cost units for each type of serviceindustry. /asically, Operating%ostingis atypeof 9rocess %osting. Thus it uses themethods of 9rocess %osting when ascertaining the cost of supply of electricity, steam etc.7owever, sometimes Operating %osting may adopt a particular :ob as a unit of costs as fore!ample when costing a particular trip by a bus so as to $uote the charges. In such casesOperating %osting uses the methods of :ob %osting by treating a specific trip as a separate;ob. ' cost unit under operating costing may be of two types -