Operating costing

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 |oncept of operating costing

¢ Operating costing is the method used by undertakings

rendering services, such as transport and electricity,
steamship companies , hospitals, restaurants, theaters,
travel agencies , schools etc.
¢ |ost per unit = Total operating cost
the quantity of service provided
|ost unit in operating costing can be divided in to two types.
(a) Simple cost unit
(b) |omposite cost unit
 Transport |osting

¢ Under this method , the operating cost of each vehicle is

determined. The common unit of service is tonne kilometer
in case of goods transport, and passenger kilometer in case
of passenger transport. While, calculating the unit of
service , the weight and/or passenger and the distance
should be calculated.
¢ In transport costing cost are classified under following
three heads.
¢ Fixed cost / Specific cost :
Garage charges, Insurance, Taxes , license, time-based
depreciation, wages of drivers and cleaners, establishment
cost of workshops, general service cost.
 |onti«

_ Semi-variable cost / Maintenance |ost :Expenditure

on repairs, maintenance , tyres, tubes, accessories
and spares.
_ Variable cost / Running expenses : Such cost
depends on the trips made and the distance run by
the vehicle. These cost include cost of fuel,
lubricating oil, depreciation based on run, wages of
driver and cleaner etc.
 aoiler |osting / Power House costing

_ Where steam is used for the purpose of generating electricity, It

is possible to compute the cost of electricity generated by
aggregating the steam production costs with other related cost
of electricity generation.
_ A cost unit is generally in terms of kilograms.
_ The main heads of expenditure for a boiler house are as follows:
Î Water : Cost of supply, purification
Î Indirect Materials : service materials and small tools
Î Fuel : Coal or oil
Î Labour
Î Supervision
Î Maintenance
Î Overhead cost : Rent , rates, depreciation, insurance and interest on capital
 |anteen |osting

_ Hotels, restaurants employ operating costing. The total

operation of a hotel is divided into number of cost
centers.
Î Restaurant- cost unit is number of meals served
Î Housekeeping- cost unit is no. of rooms cleaned
Î Laundry- cost unit is number of clothes washed
The important heads of expenditure is :
Î Provisions : Vegetables, fruits, meat . Flour, milk , oil, sugar
Î Labour : Salary of cooks, kitchen assistance, supervisors
Î service : steam, gas , electricity, power and light
Î |onsumable stores : crockery, glassware
Î Misc. overheads : Rent , rates, depreciation , insurance
Î |redit : |harges of meals. Tea and other sales
 Hospital costing

_ The hospital services can be divided into the following categories.

Î Outpatient Department
Î Wards
Î Medical Service Department
Î General Services
Î Other Service Department