COST AND MANAGEMENT ACCOUNTING YEAR 1 SEM 2

INTRODUCTION• Operating costing / service costing is the method

applied to ascertain the cost providing or operating a service .Thus the field of its application covers the undertakings which don’t manufacture any article but provides or operate services . Transport companies , electricity companies , hospitals , hotels , etc are examples of above undertakings.A manufacturing company may maintain service departments like transport department , powerhouse , canteen, hospitals e.t.c to provide services to the manufacturing ,sales and welfare of the concern.

Following are some of the cost units selected for different types of services :

Services Cost units

1. Passenger transport service( bus , train , passenger train ,air transport

,e.t.c )

1. Passenger – km.

2. Goods transport service ( Lorry , goods train , air transport of

goods , e.t.c )

2. Ton-km , Quintal – km.

3. Private transport(Private car ,Private motor vehicle , e.t.c )

3. Running hour , trip , km.

4. Electric supply services 4. Killowatt - hour

5. Canteen services 5. Man-meal.

6. Hospitals 6. Patient – day

7. Hotel accomodation 7. Occupied room – day.

• In case of motor company , operating cost of each vehicle is to be determined and then it should be applied to find out cost per unit of service rendered by it.The units of cost are choosen according to the needs of the concern and after taking into the consideration of weight , bulk of materia/goods , types of goods ,distance covered by each trip e.t.c .The units commonly in use are – hours of running a ton , a kilometre , a ton-kilometre ,a quintal-kilometre , e.t.c

Compilation of cost :-

Standing ( or fixed or stand-by) cost.

Maintenance cost .

Operating or running cost.

1. Operating / Running costs : These costs depend upon the number of trips made and distance covered .So these are variable in nature .Cost of fuel , oil,lubricating oil,e.t.c .If the wages of the driver and cleaner are paid on the basis of number of trips or distance run , such wages are also falls under this head.

2. Maintenance cost : Cost incurred in maintaining the vehicles are the maintenence cost .Cost of repair ,tyres ,tubes,and other accessories are the examples of maintenence cost.These cost are semi-variable in nature . This cost can also classified into fixed and variable cost.

3. Standing cost : As the name implies this cost are standing or fixed in nature and doesn’t change irrespective of no.oftrips , distance covered e.t.c.Licence fees ,insurance , road and other taxes , depreciation , head office expenses ,cost of workshop ,general service charge ,e.t.c are fall under this category.

CONCEPT BUILDING PROBLEMS.