11

Service Costing/Operating Costing

11.1 INTRODUCTION

It is a method of ascertaining costs of providing or operating a service. This method of costing is applied by those undertakings, which provide services rather than production of commodities. The emphasis under operating costing is on the ascertainment of cost of services rather than on the cost of manufacturing a product. This costing method is usually made use of by transport companies, gas and water works departments, electricity supply companies, canteens, hospitals, theatres and schools.

Operation costing is an advanced form of job-order and process costing. Operation costing uses the methods that are found in either process or job-order costing. Service costing is the cost of providing a service. In other words, service costing is a method of costing applied to determine the cost of rendering service. It is adopted by those businesses, which operate a service rather than produce goods. Service is their final product and this service is sold to consumers. This service may be used within the enterprise as in the case of canteen boiler houses and so on; or may be rendered to the public as in state transport, hospitals, electricity and so on. Service provided within the organization is known as internal service. Service provided outside the organisation is known as external service.

11.1.1 When is operation costing appropriate?

Operation costing is appropriate in businesses that have products that are very similar, yet differentiated in some form from each other. This difference can be in the finishing or in the actual functionality of the product.

For computing the operating cost, it is necessary to decide first, about the unit for which the cost is to be computed.

The cost units usually used in the following service undertakings are as below:

 

Transport service Supply service Hospital Canteen Cinema

Passenger kilometre, quintal kilometre, or tonne-kilometre Kilowatt-hour, cubic metre, per kilogram, per litre Patient per day, room per day or per bed, per operation, etc. Per item, per meal, etc. Per ticket.

11.1.2 Cost units used in service costing

The selection of cost unit is different in service costing. Both simple and composite cost units are used.

 

Name of the service	Cost unit
(I)   Passenger transport    (II)   Goods transport   (III)   Hospital   (IV)   Electricity supply    (V)   Canteen   (VI)   Cinema theatre  (VII)   Lodge	Per passenger kilometre Per tonne-kilometre Per patient bed Per kilowatt-hour Per meal per person Per man show Per room day

 

Passenger kilometre = No. of vehicles × No. of. days × No. of. trips × Distance covered × Capacity × Normal passenger travelling

11.1.3 Transport costing

Transport industries include air, water, road and railways. Motor transport includes private cars, buses, taxis, carriers and lorries. The objectives of motor transport costing may be summarized as follows:

• To provide information whereby the efficiency with which the vehicles are rented may be judged.
• To provide an accurate basis for quotation and fixing of rates
• To ensure that all journeys have been carried out in proper time, fuel consumed is not excessive and that tyres are properly maintained
• To provide cost comparison between own transport and alternative, e.g. hiring
• To compare the cost of maintaining of one group of vehicles with another group
• To determine what should be charged against departments using the service
• To decide at what price the use of vehicle can be charged
• To ensure that cost of maintenance and repairs is not excessive

Illustration 1

 

Number of buses Days operated Round trips by each bus Distance of route 20 km long one side Capacity of bus Normal passenger travelling 90% of capacity.

10 25 4 40 seats

 

Tonne kilometre = Total capacity (number of vehicles used × tons carried) × average kilometre × number of trips × days of month × percentage of vehicles runs on or average × capacity used.

Solution:

 

 

Illustration 2

 

Number of Vehicles	Capacity (in tonnes each)
10 05 20	02 06 05

 

Each vehicle makes 5 trips a day covering distance of 10 km in each trip. On average 10% of the vehicles are laid up for repairs daily and 80% of capacity of vehicle is actually used. Company operates for 25 days a month.

 

Solution:

 

 

Accounting Procedure for Transport Costing

Preparation of Cost Sheet under Operating Costing

For preparing a cost sheet under operating cost, costs are usually accumulated for a specified period namely a month, a quarter, or a year.

All the accumulated costs should be classified under the following three heads:

1. Fixed costs or standing charges,
2. Variable costs or running charges,
3. Semi-variable costs or maintenance costs.

Note: In the absence of information about semi-variable costs, the costs may be shown under two heads only, i.e. fixed and variable.

Under operating costing, the cost per unit cost of service may be calculated by dividing the total cost for the period by the total units of service in the period.

Treatment of depreciation and interest—depreciation, if related to effluxion of time, may be treated as fixed. If it is related to the activity level, it may be treated as variable.

If information about interest is explicitly given, it may be treated as fixed cost.

 

Examples of fixed charges are:	Examples of fixed charges are:	Examples of variable charges are:
(a) wages (if passed monthly)	(a) wages (if passed monthly)	(a) petrol and diesel
(b) rent	(b) rent	(b) oil
(c) licence	(c) licence	(c) repair
(d) insurance	(d) insurance	(d) maintenance
(e) salary	(e) salary	(e) wages (if based on km run)
(f) taxation	(f) taxation	(f) depreciation
(g) interest	(g) interest	for calculation of the rate per km/per passenger the following points are essential
(h) supervision	(h) supervision
		(a) days maintained
		(b) days operated
		(c) days idle
		(d) total hours operated
		(e) total kilometre covered
		(f) total trips made
		(g) total kilometre run

 

Illustration 3

 

Number of buses	4
Number of days operated	30
Number of trips per day per bus	2
Seating capacity	60 persons
Average passengers traveling	40
Distance covered on way	20 km

 

Calculate passenger kilometre

 

Solution:

 

 

Illustration 4

 

Number of buses	5
Number of days operated	25
Number of trips made	2
Seating capacity	60 persons
Average passengers travelling	75%
Distance covered two way	48 km

 

Calculate passenger kilometre

 

Solution:

 

 

 

Illustration 5

 

Number of lorries	5
Capacity of a lorry	8 tonnes
Number of days operated	20 days
Kilometre covered each day	200 km
Load carried 80% of capacity
Kilometre run empty	30%

 

Calculate tonne-kilometre

 

Solution:

 

 

Illustration 6

Number of lorries	10
Capacity of a lorry	20 tonnes
Number of days operated	26 days
Number of trips per day	1
Average load carried 70% of capacity
Empty running	40%
Kilometre covered each day	200 km

 

Calculate tonne-kilometre.

 

Solution: Calculation of total tonne-kilometre

 

 

Illustration 7

Operating cost sheet of truck for the year

	p.a.	per km
Particulars	Rs P.	Rs P.
Fixed charges:
Road licence	650
Insurance	800
Garage rent	700
Supervision	1,400
Interest on vehicle (10% on 30,000)	3,000
Total fixed charges	6,550	0.33
Variable charges:
Petrol		0.20
Repairs		1.80
Type allocation		0.40
Driver's wage		0.10
Depreciation		0.30
Operating cost per running km		3.13

 

Illustration 8

 

Value of vehicle	Rs 40,000
Road licence (annual)	Rs 2,000
Driver's wages (per month)	Rs 3,000
Insurance (annual)	Rs 3,000
Garage rent (annual)	Rs 4,000
Direct wages (per month)	Rs 3,000
Cost of petrol per litre	Rs 25
Mileage per litre	30
Estimated life in miles	1,00,000
Annual mileage runs	10,000

 

Calculate cost per mile.

 

Solution: Calculation of cost per mile

 

	p.a.	per km
Particulars	Rs P.	Rs P.
Standing charges
Road licence	2,000
Insurance	3,000
Garage rent	4,000
Total standing charges	9,000	0.90
Variable charges
Type maintenance	4.00
Petrol		0.83
Driver's wages		3.60
Depreciation		0.40
Operating cost per mile		9.73

 

COST PER EFFECTIVE KILOMETRE

Illustration 9

Anandhan owns a fleet of taxis and the following information is available from the records maintained by him.

 

1. Number of taxis	10
2. Cost of each taxi	Rs 54,600
3. Salary of manager	Rs 700 p.m.
4. Salary of accountant	Rs 500 p.m.
5. Salary of cleaner	Rs 200 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	Rs 600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 900 per taxi
10. Driver's salary	Rs 350 p.m. per taxi
11. Annual repairs	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km in a month and 30% of this distance has to be run without any passenger. Petrol consumption is one litre for every 10 km at 4.41 per litre. Oil and other expenses are Rs 10.50 per 100 km.

Calculate the cost of running a taxi per km.

Solution: Cost of running a taxi per km

 

	per month	per km
Particulars	Rs P.	Rs P.
Fixed charges:
Manager's salary	70
Accountant salary	50
Cleaner's salary	20
Mechanics salary	40
Garage rent	60
Insurance premium	227.50
Annual tax	75
Driver's salary	350
Annual repairs	83.33
Total fixed charges	975.83	0.4646
Variable charges:
Depreciation	819
Petrol	1,323
Oil and other expenses	315
Total variable charges	2,457	1.17
Cost of running a taxi per km		1.635

 

Illustration 10

Ram owns a fleet of taxies and the following information is available from the records maintained by him.

 

1. Number of taxis	10
2. Cost of each taxi	Rs 50,000
3. Salary of manager	Rs 1,000 p.m.
4. Salary of accountant	Rs 600 p.m.
5. Salary of cleaner	Rs 200 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	Rs 600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 600 per taxi
10. Driver's salary	Rs 500 p.m. per taxi
11. Annual repairs	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km in a month of which 30% of it runs empty. Petrol consumption is one litre for 10 km @ Rs 7 per litre. Oil and other sundries are Rs 10 per 100 kilometres.

 

Solution: Calculation of effective km run

 

Taxi runs in a month	3,000
Less: 30% empty	900
Effective km run	2,100
Fixed charges:
Manager's salary	100
Accountant salary	60
Cleaner's salary	20
Mechanics salary	40
Garage rent	60
Insurance premium	208.33
Annual tax	50
Driver's salary	500
Annual repairs	83.33
Total fixed charges	1,121.66	0.53
Variable charges:
Petrol	2,100
Oil and other expenses	300
Depreciation	750
Total variable charges	3,150	1.50
Cost of running a taxi per km		2.03

 

Illustration 11

Jawan owns a fleet of taxis and the following information is available from the records maintained by him:

 

1. Number of taxis	5
2. Cost of each taxi	Rs 20,000
3. Salary of manager	Rs 900 p.m.
4. Salary of accountant	Rs 600 p.m.
5. Salary of cleaner	Rs 300 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	Rs 800 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 1,200 per taxi
10. Drivers salary	Rs 400 p.m. per taxi
11. Annual repair	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 km. A taxi runs in all 5,000 km in a month of which 40% of it runs empty. Petrol consumption is one litre for 10 km @ Rs 1.80 per litre. Oil and other sundries are Rs 5 per 100 km.

Calculate the cost of running a taxi per kilometre.

 

Solution: Calculate effective km

 

Taxi run in a month	5,000
(Less) 40% empty	2,000
Effective km run	3,000

 

 

Illustration 12

 

Staff salary Rs 60,000 per annum
Room attendant's salary is Rs 6 per day.
Room attendants are needed only when the room is occupied. There is one room attendant per room.
Normal lighting expenses for a room for a month is Rs 60
Power is used only in winter and normal charge per month when occupied for a room is Rs 30
Repairs to building Rs 12,000 per annum
Linen and cleaning	Rs 5,200 p.a.
Other expenses	Rs 4,800 p.a.
Interior decoration	Rs 12,000 p.a.
Cost of building	Rs 4,20,000
Rate of depreciation	10%
Other equipments	Rs 1,40,000
Depreciation	10%
Investment	Rs 10,00,000 interest 10%
There are 100 rooms in the hotel.
70% of the room are normally occupied in summer.
70% of the room are normally occupied in winter.
Winter and summer are of six months each.
Normal days in a month is 30
Profit to be earned	25% on cost

Calculate the room to be charged per day.

 

Solution: Calculation of room days:

 

 

Total Rs 1,08,000

Calculation of lighting:

 

 

Total Rs 36,000

Calculation of power:

 

 

Statement of operating cost

 

Particulars	p.a.
Staff salary	60,000
Room attendants	1,08,000
Lighting	36,000
Power	5,400
Repairs	12,000
Linen and cleaning	5,200
Other expenses	4,800
Interior decoration	12,000
Depreciation on building	42,000
Depreciation on equipments	14,000
Interest on investments	1,00,000
	3,99,400
Profit (3,99,400 − 1,00,000) × 25%	74,850
	4,74,250/18,000
	Rs 26.35

 

Power House Costing

It is concerned with the ascertainment of cost per unit of electricity produced. The unit of cost referred here is kilometre per hour. Here, labour is treated as variable charges.

 

Boiler House Costing

Boiler houses too take to operating costing. Their aim is to ascertain the total and per unit cost of generating steam or electricity so as to fix departmental charges and outside tariffs while the details of constituent elements of cost are furnished by the cost office; technical data is supplied as to steam pressure, evaporation metre—reading, factory heating, turbines, losses. are supplied by the engineering department. Standards of expenditure should be worked out under each major head on the basis of detailed studies.

The main heads of expenditure for an undertaking like boiler house are the following:

1. Water—cost of supply, purification and softening.
2. Indirect materials—service materials and small tools.
3. Fuel—coal or oil, including of course its cartage handling and storage.
4. Labour—wage of coal handlers, stockers and ash removers.
5. Supervision—wages of foremen and salary of the works manager.
6. Maintenance—furnace repairs, renewal of fire bars, replacement of fire iron and so on.
7. Overhead costs—rent, rates, depreciation, insurance and interest on capital.

Illustration 13

 

Total units generated	14,00,000 kWh
Operating labour	Rs 80,000
Repairs and maintenance	Rs 60,000
Lubricants	Rs 60,000
Plant supervision	Rs 1,40,000
Administration overheads	Rs 1,20,000
Coal consumed per kWh in 4.5 kg
Rate of coal per kg	0.60 paise
Depreciation @ 10% on capital cost of Rs 4,00,000
Prepare operating cost sheet for kWh.

 

Solution: Operating cost sheet

 

Particulars per kWh

 

Fixed charges

 

Plant supervision	1,40,000
Administration overheads	1,20,000
Total fixed charges	2,60,000/14,00,000	0.1857

 

Variable charges

 

Operating labour	80,000
Repairs	60,000
Lubricants	60,000
Depreciation (4,00,000 × 10%)	40,000
2,40,000/14,00,000	0.1714
Coal consumed (4.5 kg × 0.60)	2.70
Cost per kWh	3.0571

 

Illustration 14

 

Operating labour	Rs 24,000
Plant supervision	Rs 64,000
Lubricants	Rs 12,600
Repairs	Rs 22,400
Administration overheads	Rs 1,20,000
Capital cost	Rs 1,60,000
Units produced	Rs 16,00,000
Coal consumed per kWh in 2.5 kg
Depreciation	10%
Rate of coal per kg	0.80 paisa

 

Prepare cost per unit of kWh.

 

Solution: Operating cost shee

 

	kWh
Particulars	Rs
Fixed charges
Plant supervision	64,000
Administration overheads	1,20,000
1,84,000/16,00,000	0.115
Variable charges
Operating labour	24,000
Repairs	22,400
Lubricants	12,600
Depreciation (1,60,000 × 10%)	16,000
75,000/16,00,000	0.047
Coal consumed (2.5 kg × 0.80)	2.00
Cost per kWh	2.162

 

 

Illustration 15

From the following data relating to two different vehicles A and B, compute the cost per running mile:

 

	Vehicle A Rs	Vehicle B Rs
Mileage run (annual)	15,000	6,000
Cost of vehicle	30,000	20,000
Road licence (annual)	1,000	1,000
Insurance (annual)	800	600
Garage rent (annual)	1,000	500
Supervision and salaries	1,500	1,600
Driver's wage per hour	3	3
Cost of fuel per gallon	3	3
Miles run per gallon	20 miles	15 miles
Repairs and maintenance per mile	1.65	2.00
Tyre allocation per mile	0.80	0.60
Estimated life of vehicles	1,00,000 miles	75,000 miles

 

Charge interest at 5% per annum on cost of vehicles. The vehicles run 20 miles per hour on an average.

 

Solution: Cost sheet (cost per mile running)

 

	Vehicle A Rs	Vehicle B Rs
A. Standing charges:
	4,500	1,600
Road licence	1,000	1,000
Insurance	800	600
Interest @ 5%	1,500	1,000
Total	7,800	4,200
B. Maintenance charges:
Garage rent	1,000	500
Supervision and salaries	1,500	1,600
Repairs and maintenance	24,750	12,000
Total	27,250	14,100
C. Running charges:
Petrol:	2,250	1,200
Driver's wages: miles run × 3/20	2,250	900
Tyre expenses	12,000	3,600
Total	16,500	5,700
Total operating cost (A + B + C)	51,550	24,000
Total miles run	15,000	6,000
Cost per running mile	3.44	4

 

Problem 1. From the following data relating to two different vehicles A and B, compute the cost per running mile:

 

	A Rs	B Rs
Mileage run (annual)	15,000	6,000
Cost of vehicles	25,000	15,000
Road licence (annual)	750	750
Insurance (annual)	700	400
Garage rent (annual)	600	500
Supervision, salaries, etc. (annual)	1,200	1,200
Driver wage per hour	8	8
Cost of petrol per litre	10	10
Miles run per litre	20 miles	15 miles
Repair and maintenance charge (per mile)	0.20	0.30
Tyre allocation per mile	0.80	0.60
Estimated life of the vehicle	1,00,000 miles	75,000 miles

 

You are to charge interest on cost of vehicles at 5% per annum. The vehicles run 20 miles per hour on an average.

(ICWA)
[Ans: Rs 2.45 (Vehicle A); Rs 2.77 (Vehicle B)]

 

Illustration 16

Work out in appropriate cost sheet form, the unit cost per passenger mile for the year 1968–1969 for a fleet of passenger buses run by a transport company from the following figures extracted from its books:

5 passenger buses costing Rs 50,000, Rs 1,20,000, Rs 45,000, Rs 55,000 and Rs 80,000, respectively. Yearly depreciation of vehicles—20% of the cost. Annual repair, maintenance and spare parts—80% of depreciation.

 

Wages of 10 drivers @ Rs 100 each per month

Wages of 20 cleaners @ Rs 50 each per month

Yearly rate of interest @ 4% on capital

Rent of six garages @ Rs 50 each per month

Director's fees @ Rs 400 per month

Office establishment @ Rs 1,000 per month

Licence of taxes @ Rs 1,000 every 6 months

Realization by sale of old tyres and tubes @ Rs 3,200 every six months.

900 passengers were carried over 1,600 miles during the year

(I.C.W.A. Final)

 

Solution:

 

 

	Rs	Cost per passenger mile Re
Annual fixed expenses
Interest @ 4% on capital costs	14,000
Rent for six garages @ 50 p.m.	3,600
Director's fees	4,800
Office establishment	12,000
Licence and taxes	2,000
Wages of drivers (10 × 12 × 100)	12,000
Wages of cleaners (20 × 12 × 50)	12,000
Total	60,400	0.042
Annual variable expenses
Depreciation @ 20% on Rs 3,50,000	70,000	0.048
Repairs and maintenance charges 80% of Rs 70,000	56,000	0.039
		0.129
Less: Recovery from sale of tyres and tubes	64,000	0.004
Cost per passenger mile		0.125

 

Problem 2. Anandhan owns a fleet of Taxis and the following information is available from the records maintained by him.

 

1. Number of taxis	10
2. Cost of each taxi	Rs 54,600
3. Salary of manager	Rs 700 p.m.
4. Salary of accountant	Rs 500 p.m.
5. Salary of cleaner	Rs 200 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	Rs 600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 900 per taxi
10. Driver's salary	Rs 350 p.m. per taxi
11. Annual repairs	Rs 1,000 per taxi

Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km in a month and 30% of this distance has to be run without any passenger. Petrol consumption is one litre for every 10 km at 4.41 per litre. Oil and other expenses are Rs 10.50 per 100 km.

Calculate the cost of running a taxi per km.

(Madras, 1995)
[Ans: Cost of running a taxi per km: Rs 1.635; Cost per taxi per month: Rs 3,432.83;
Effective running km per month per taxi: 2,100 km]

 

Illustration 17

You have been given a permit to run a bus on a route 20 km long. The bus costs you Rs 1,00,000. It has to be insured @ 3% p.a. and the annual tax will be Rs 2,000. Garage rent is Rs 100 p.m. Annual repairs will be Rs 1,000 and the bus is likely to last for 5 years at the end of which the scrap value is likely to be Rs 5,000.

The driver's salary will be Rs 150 p.m. and the conductor's Rs 100 together with 10% of the takings as commission (to be shared equally by both). Stationery will cost Rs 50 p.m. The manager-cum-accountant's salary will be Rs 450 p.m.

Diesel and oil be Rs 25 per 100 km. The bus will make 3 round trips for carrying on the average 40 passengers on each trip. Assuming 15% profit on takings, calculate the bus fare to be charged from each passenger. The bus will work on the average 25 days in a month.

Solution: Operating cost statement

 

Bus No. DLP 4179 carrying capacity: 40	Per annum Rs P.	Per 100 Passenger km. Rs P.
1	2	3
A. Standing charges
Depreciation (1,00,000 − 5,000) ÷ 5	19,000
Tax	2,000
Insurance	3,000
Stationery	600
Manager's salary	5,400
Total	30,000	2.083
B. Maintenance charges
Garage rent	1,200
Repairs	1,000
Total	2,200	0.152
C. Operating or running charges
Diesel and oil	9,000
Driver's salary	1,800
Conductor's salary	1,200
Total	12,000	0.833
Grand total (A + B + C)		3.068
Loading @ 25/75		1.022
Fare per passenger km		4.09

 

Notes:

1. Number of km run in a month: 3 × 2 × 20 × 25 = 3,000
2. Diesel and oil: 3,000 × 25/100 = Rs 750

3. Number of passenger km

   per month: 3,000 × 40 = 1,20,000

   per annum: 1,20,000 × 12 = 14,40,000

4. Loading: If taking is Rs 100, 10 will have to be given as commission and 15 must remain as profit; the cost must therefore be 75. On 75 the loading must be 25 to make the taking equal to 100.

Problem 3. A transport company is running four buses between two towns, which are 50 km apart. Seating capacity of each bus is 40 passengers. The following particulars were obtained from their books for April 1998:

 

	Rs
Wages of drivers and conductors	2,400
Salaries to office staff	1,000
Diesel and other oils	4,000
Repairs and maintenance	800
Taxes and insurance	1,600
Depreciation	2,600
Interest and other charges	2,000
	14,400

 

Actual passengers carried were 75% of the seating capacity. All the four buses run on all days of the month. Each bus made one round trip per day. Find out the cost per passenger km.

(Madras, B.Com., (ICE) C & M, May 1999; April 1998; B.Com., Sept. 1988; B.A 1993)

[Ans: Passenger km for the month: 3,60,000; Cost per passenger km = Re 0.038888 (or) 0.04]

Illustration 18

Jaidka owns a fleet of taxis and the following information is available from the records maintained by him:

 

1. Number of taxis	10
2. Cost of each taxi	Rs 30,000
3. Salary of manager	Rs 1,000 p.m.
4. Salary of accountant	Rs 700 p.m.
5. Salary of cleaner	Rs 300 p.m.
6. Salary of mechanics	Rs 500 p.m.
7. Garage rent	Rs 600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	600 per taxi
10. Drivers salary	Rs 200 p.m. per taxi
11. Annual repair	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km in a month of which 30% of it runs empty. Petrol consumption is one litre for 10 km @ Rs 1.80 per litre. Oil and other sundries are Rs 5 per 100 km.

Calculate the cost of running a taxi per kilometre.

Solution: Operating cost sheet

(Effective km 2,100)

 

 

Problem 4. Ram owns a fleet of taxies and the following information is available from the records maintained by him.

 

1. Number of taxis	10
2. Cost of each taxi	Rs 50,000
3. Salary of manager	Rs 1,000 p.m.
4. Salary of accountant	Rs 600 p.m.
5. Salary of cleaner	Rs 200 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	Rs 600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 600 per taxi
10. Driver's salary	Rs 500 p.m. per taxi
11. Annual repairs	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 k.m. A taxi runs in all 3,000 km in a month of which 30% of it runs empty. Petrol consumption is one litre for 10 km @ Rs 7 per litre. Oil and other sundries are Rs 10 per 100 kilometres.

(CA, ICWA)

[Ans: Rs 2.03]

Illustration 19

An entrepreneur owns a bus, which runs from Delhi to Agra and back for 25 days in a month. The distance from Delhi to Agra is 170 km. The bus completes the trip from Delhi to Agra and back on the same day. Calculate the fare the entrepreneur should charge a passenger if he wants to earn a profit of 33.33% on cost. The following information is further available

 

Cost of bus	Rs 3,50,000
Salary of driver per month	Rs 1,200
Salary of conductor per month	Rs 700
Salary of part-time accountant per month	Rs 480
Insurance per annum	Rs 6,720
Diesel consumption 16 km per gallon costing	Rs 26
Local taxes per annum	Rs 1,200
Lubricant oil per 100 km	Rs 25
Repairs and maintenance per annum	Rs 1,000
Licence fee per annum	Rs 3,000
Normal capacity (person)	Rs 50
Depreciation rate per annum	Rs 15

 

The bus usually runs full up to 90% of its capacity both ways. Interest is payable on the cost of bus at 10% per annum.

 

Solution: Operating cost statement to determine the fare of running a bus from Delhi to Agra per passenger km.

 

Particulars	Total cost (Rs)
(i) Standing charges
Salary of driver (Rs 1,200 × 12)	14,400
Salary of conductor (Rs 700 × 12)	8,400
Salary of part-time (Rs 480 × 12)	5,760
Insurance	6,720
Local taxes	1,200
Licence fee	3,000
Interest (10% × 3,50,000)	35,000
(ii) Running charges	74,480 (i)
Depreciation of bus (15% × 3,50,000)	52,500
Diesel cost per annum (170 × 2 × 25 days × 12 months) × Rs 25 ÷ 16	1,59,375
Lubricant oil (1,02,000 km × Rs 20) ÷ 100	20,400
Repairs and maintenance per annum	1,000
	2,33,275 (ii)
(iii) Total charges (I + II)	3,07,755
(iv) Total passenger km in a year (170 × 2 × 25 days × 12 months × 45 persons)	45,90,000
(v) Cost per passenger km (III + IV)	0.067
(vi) Add desire profit (33½% on cost)	0.022
Fare per passenger km	0.088
Fare charges (Re 0.089 × 170 km)	15.13

 

Problem 5. A person owns air condition bus, which runs between Delhi and Chandigarh and back for 10 days in a month. The distance between Delhi and Chandigarh is 150 miles. The bus completes the trip from Delhi and Chandigarh and will be back on the same day.

The bus goes to Agra for another 10 days. The distance between Delhi and Agra is 120 miles. This trip is also completed on the same day. For the rest of the 4 days of its operation, it runs in the local city. Daily distance covered is 40 miles.

Calculate the charge to be made by the person when he wants to earn profit of 33 1/3% on his takings. The other information is:

 

Cost of the bus	Rs 1,00,000
Depreciation	20% p.a.
Salary of driver	Rs 650 p.m.
Salary of conductor	Rs 650 p.m.
Salary of accountant	Rs 360 p.m.
Insurance	Rs 1,680 p.a.
Diesel consumption 4 miles per litre costing Rs 3 per litre
Road tax	Rs 600 p.a.
Lubricant	Rs 20 per 100 miles
Repairs and maintenance	Rs 500 p.a.
Permit fee	Rs 284 p.m.
Normal capacity	50 per sons

 

The bus generally occupies 90% of the capacity when it goes to Chandigarh, 80% when it goes to Agra. It is always full when it runs within the city. Passenger tax is 20% of his net takings.

(B. Com., Bangalore)

[Ans: Cost per passenger per mile Re 0.072; Charges for Chandigarh per passenger:
Rs 10.80; Charges for Agra per passenger: Rs 8.64]

Illustration 20

Compute cost per running kilometre from the following data of a truck.

 

Estimated life of vehicle	1,50,000 km
Annual running	15,000 km

 

	Rs P.
Cost of vehicle	40,000
Road licence (annual)	1,000
Insurance (annual)	1,000
Garage rent (annual)	900.00
Supervision and salaries (annual)	2,700.00
Drivers’ wages per hour	3.00
Cost of fuel per litre	3.00
Repairs and maintenance per km	1.75
Tyre allocation per km	0.90

 

Charge interest at 5% per annum on cost of vehicle. The vehicle runs 20 km per hour on an average and one litre of fuel gives 20 km.

 

Solution: Operating cost sheet of truck for the year

 

 

Note: Depreciation and driver's wages are running charges because they are related to the distance covered.

 

Problem 6. From the following data calculate the cost per mile of a vehicle:

	Rs
Value of vehicle	1,00,000
Garage rent per year	1,200
Insurance charges per year	400
Road tax per year	500
Driver's wages per month	600
Cost of petrol per litre	6.40
Tyre maintenance per mile	0.80
Estimated life—1,50,000 miles
Miles per litre of petrol-8
Estimated annual mileage-6,000

 

(B. Com., Kerala)
[Ans: Rs 3.82]

Illustration 21

Jayakumar with an inter-state bus permit, has been running a bus of 50 passenger capacity every month as follows:

1. Madras–Kolar (150 km apart)—Round Trip, 10 days in a month with 90% passengers.
2. Madras–Chittoor (200 km apart)—Round Trip, 10 days in a month with 80% passengers
3. Madras–Tirupathi (150 km apart)—Round Trip, 10 days in a month with 70% passengers.

He requests you to fix ‘cost-based’ passenger rates, providing the following information.

1. Passenger tax payable to Government 1/6 of gross receipts.
2. Commission to conductor and driver at 5% on net receipts.
3. Required profit 35% on net receipts.
4. Bus purchase price Rs 2,10,000 to be depreciated at 10% p.a.
5. Interest on the capital cost of bus at 5% p.a.
6. Expenses of the bus were

 

	Rs
Permit fees per annum	14,400
Token tax per annum	5,100
Insurance per annum	9,000
Office expenses (apportioned per month)	1,000
Tyres and tubes Re 0.4 per km
Diesel 10 km per litre at Rs 10 per litre
Drivers salary per month	1,200
Conductors salary per month	800
Cleaning and repairs charges per month	1,500
Lubricants and supplies Rs 0.10 per km
Sundry route expenses per month	500

 

Solution: Statement showing operating cost (4,00,000 pass km)

 

Particulars	Per month Rs	Per pass km. Rs P.
Standing charges:
Permit fees	1,200
Token tax	425
Insurance	750
Office expenses	1,000
Driver's salary	1,200
Conductor's salary	800
Sundry route expenses	500
Depreciation	1,750
Interest on capital cost	875
Total standing charges (A)	8,500	0.02125
Maintenance charges:
Tyres and tubes (10,000 × 0.4)	4,000
Cleaning and repairs	1,500
Lubricants and supplies (10,000 × 0.10)	1,000
Total maintenance charges (B)	6,500	0.01625
Running charges:
	10,000	0.02500
Total operating cost (A + B + C)	25,000	0.0625
Add: Commission of conductor and driver (W.N.3)	2,083	0.00500
Add: Required profit (W.N.3)	14,583	0.03500
Net collections	41,667	0.1042
Add: Passenger tax at 1/6 on gross receipts (or) 1/5 on net collections	8,333	0.0208
Gross collections	50,000	0.125

 

Bus charge from Madras to Kolar = 150 km × 0.12 = Rs 18

Bus charge from Madras to Chittoor = 200 × 0.12 = Rs 24

Bus charge from Madras to Tirupathi = 150 km × 0.12 = Rs 18

 

Working Note (1):

 

 

Working Note (2):

Running km: Days × distance

Madras–Kolar = 10 × 150 × 2 = 3,000

Madras–Chittoor = 10 × 200 × 2 = 4,000

Madras–Tirupathi = 10 × 150 × 2 = 3,000

Running km per month = 10,000

Working Note (3):

If net collections are = 100

 

 

∴ Driver and conductor's commission

5% on net collections or 5/60 on cost =

Required profit = 35% on net collections

or 35/60 on cost =

Problem 7. A transport company is running 4 buses between towns which are 50 km apart. The seating capacity of each bus is 40 passengers. The following particulars were obtained from their books for the month of April.

 

	Rs
Wages of drivers, conductors and cleaners	4,000
Salaries to office staff	2,000
Diesel and other oils	5,000
Repairs and maintenance	800
Taxes, insurance, etc.	1,600
Depreciation	2,600
Interest and other charges	2,000

 

Actual passengers carried were 75% of the capacity. All the four buses ran on all the days of the month. Each bus made one trip (up and down) per day. Calculate the cost per passenger km.

(B. Com., Madras)
[Ans: 3,60,000 passenger-km; per passenger-km: Re 0.05]

Illustration 22

Iron ore is transported from two mines ‘A’ and ‘B’ and unloaded at plots in a railway station. ‘A’ is at a distance of 10 km and ‘B’ is at a distance of 15 km, from the rail head plots. A fleet of lorries of 6 tonne capacity is used for transport from mines. The lorries average a speed of 30 km per hour when running and consume 10 minutes to unload at the railhead. At mine ‘A’ loading time averages 30 minutes while at mine ‘B’ it is 20 minutes per load.

Driver's wages, depreciation, insurance and taxes are found to cost Rs 12 per hour operated. Fuel, oil, tyres, repairs and maintenance cost Rs 1.50 per km. Draw up a statement showing the cost per ton-km of carrying iron ore from each mine.

 

Solution: Statement showing operating cost

 

Particulars	Mine A (50 ton-km)	Mine B (75 ton-km)
Standing charges per trip	Rs 16	Rs 18
Running charges per trip	Rs 30	Rs 45
Total cost per trip	Rs 46	Rs 63
Cost per ton-km (total cost/ton-km)	46/60	63/90
	Re 0.77	Re 0.7

 

Working Note (1):

 

Tonne kilometre:	Mine A	Mine B
Vehicle capacity	6 tonnes	6 tonnes
Distance to be travelled	10 km	15 km
∴ Tonne kilometres	= 6 × 10 = 60	6 × 15 = 90

 

Working Note (2):

Schedule of trip times

 

 

Working Note (3):

Costs

 

Particulars	Mine A (Minutes)	Mine B (Minutes)
Driver's wages, etc. per trip
Fuel, oil, etc. per trip	(1.50 × 20) = Rs 30	(1.50 × 30) = Rs 45.00

 

Illustration 23

Delhi Transport Company has been given a route of 20 km long to run a bus. The bus costs the company a sum of Rs 70,000. It has been insured at 3% p.a. and the annual tax will amount to Rs 1,500. Garage rent is Rs 100 p.m. Actual repairs will be Rs 1,500 and the bus is likely to last for 5 years.

The driver's salary will be Rs 150 per month and the conductor's salary will be Rs 100 per month in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Cost of stationery will be Rs 50 p.m. Manager-cum-accountant's salary is Rs 400 p.m.

Petrol and oil will be Rs 25 per 100 km. The bus will make 3 round trips carrying on the average 40 passengers on each trip. Assuming 15% profit on takings, calculate the bus fare to be charged from each passenger. The bus will run on an average 25 days in a month.

 

Solution: Statement showing the fare to be charged from a passenger for one km

 

 

^*In order to calculate the amount of commission payable to the driver and the conductor, total takings will have to be calculated.

 

Let total takings = x

 

 

Profit to be changed =

 

Total cost per month without including commission = Rs 3,100

 

 

Problem 8. Pallavan Transport Corporation runs the following fleet of buses in a particular area of Madras for 30 days in a month: 25 buses of 50 passenger capacity, On an average, each bus makes 10 trips a day covering a distance of 8 km in each trip with 75% of seats occupied. Generally, 10% of buses are kept away from the roads for repairs.

 

	Rs
Monthly expenses:
Rent	2,500
Road tax	500
Salary of chief operating manager	1,500
Salary of three assistant managers	800 each
Salary of four supervisors	400 each
Wages of 30 cleaners	100 each
Wages of 25 drivers	240 each
Wages of 25 conductors	200 each
Consumable stores	4,500
Diesel	34,000
Lubricants	5,500
Replacement of tyres	1,750
Miscellaneous	2,750
Depreciation	6,500
Work shop expenses	3,500

 

Calculate the cost per passenger km of operating the service.

(Madras, 1987)

[Ans: Cost per passenger km = Re 0.04; Total passenger km = 20,25,000 per month;
Total expenses per month = Rs 81,000]

Illustration 24

A Transport Company has been given a 20 km long route to run a bus. The bus costs Rs 70,000 and has been insured @ 6% p.a. while annual taxes amount to Rs 2,000. Garage rent is Rs 100 p.m. yearly repairs will be Rs 2,000 and the bus is likely to last for five years.

The driver's salary will be Rs 4,000 p.a. and that of conductor's Rs 2,000 p.a. in addition to 10% of the taking as commission (to be shared by the driver and the conductor equally). Cost of stationery will be Rs 600 p.a. Manager's salary is Rs 400 p.m. who also looks after accounts.

Petrol and oil will be Rs 25 per 100 km. The bus will make 3 round trips carrying on the average 40 passengers on each trip. Assuming 25% profit on taking, calculate the bus fare to be charged from the each passenger. The bus runs on an average 25 days in a month.

Solution: Statement showing the fare to be charged for a passenger km

 

	Annual exp. Rs	Monthly exp. Rs
Fixed expenses:
Insurance	4,200
Taxes	2,000
Garage rent	1,200
Driver's salary	4,000
Conductor's salary	2,000
Cost of stationery	600
Manager's salary	4,800
	18,800	1,566.67
Variable expenses:
Depreciation	14,000
Repairs	2,000	1,333.33
Petrol		7,50.00
Commission		562
Total cost p.m.		4,212
Profit 25% on takings		1,404
Total takings		5,616

 

 

Note: Calculation of commission:

Let total takings be ‘x’

Commission will be

Profit charged is

Total expenses without commission are Rs 3,650

 

 

Problem 9. Laxmi Transport Company is running 4 buses between two towns, which are 100 km apart. Seating capacity of each bus is 40 passengers.

The following particulars were obtained from their books for April:

 

	Rs
Wages of drivers, conductors and cleaners	4,800
Salaries of office and supervisory staff	2,000
Diesel oil and other oil	8,000
Repairs and maintenance	1,600
Taxation, insurance, etc.	3,200
Depreciation	5,200
Interest and other charges	4,000
	28,800

 

Actual passengers carried were 75% of the seating capacity. All the four buses ran on all the days of the month. Each bus made one round trip per day. Find out the cost per passenger-km.

(M.Com., Bhopal)
[Ans: Re 0.04]

Illustration 25

A practising Chartered Accountant now spends Re 0.90 per kilometre on taxi fares for his clients, 5 works. He is considering two other alternatives, the purposes of a new small can or an old bigger car. The estimated cost figures are:

 

Items	New small car Rs	Old bigger car Rs
Purchase price	40,000	25,000
Sale price of the car after five years	20,000	15,000
Repairs and servicing, per annum	1,000	1,200
Taxes and insurance per annum	1,700	700
Petrol price, per litre	3.50	3.50
Petrol consumption per litre	10 km	7 km

 

He estimates that he does 10,000 km annually, which of the three alternatives will be cheaper? If his practice expends and he has to do 19,000 km per annum, what should be his decision? At how many km per annum, will the cost of the two cars break even and why? Ignore interest and income tax.

 

Solution: Statement showing comparative cost of alternative modes of conveyance

 

 

For his present practice, an old bigger car is the cheapest. But at his practice expends, a new small car will be the cheapest.

The difference in the variable costs of running the two cars is 15 paise. The difference of fixed costs is Rs 2,800. Hence, the break-even point between the two cars is calculated as:

 

 

At 18,667 km per annum, the cost of the two cars will break even as verified below.

 

	New car Rs	Old car Rs
Fixed costs	6,700	3,900
Variable costs	5,600	8,000
	12,300	11,900

 

Illustration 26

XY & Company Limited owns a fleet of ten trucks each costing Rs 75,000. The company has employed one manager to whom it pays Rs 450 p.m. an accountant who gets Rs 250 p.m. and a peon who gets Rs 100 p.m. The company has got its trucks insured @ 2% per annum. The annual total tax is Rs 1,200 per truck. The other expenses are as follows:

 

Driver's salary	Rs 300 per month
Cleaner's salary	Rs 100 per month
Mechanic's salary	Rs 400 per month
Repairs and maintenance	Rs 1,200 per year for one truck
3 km per litre at Re 90 per litre
The estimated life of the truck is five years.

 

Other information:

 

Distance travelled by each truck per day 200 km.
Normal loading capacity	100 quintals
Wastage in loading capacity	10%
Percentage of truck laid up for repair	5%
Effective days in a month	25

 

Calculate (a) cost per quintal kilometre and (b) cost per kilometre of running a truck.

 

Solution:

 

 

 

Operating cost per quintal km and per km.

 

Fixed expenses per month	Rs
Manager's salary	450
Accountant's salary	250
Peon's salary	100
Mechanic's salary	400
Total for 10 trucks per month for one truck	1,200
	Rs
Salary for one truck	120.00
Driver's salary per truck	300.00
Cleaner's salary	100.00
Repair and maintenance	100.00
Insurance	125.00
Annual tax	100.00
Depreciation	1,250
	2,095

 

Effective quintal km per month 4,750 for one truck

Effective km per month 4,750 for one truck	per km paise	per quintal km paise
Fixed expenses	0.44	0.049

 

 

 

Note: Diesel consumption value has been taken for 5,000 km per truck because it has been assumed that during the time of repairs there will be consumption of diesel. Hence 5,000 km for truck has been calculated as follows:

 

Problem 10. A transport company supplies the following details in respect of a truck of five ton capacity:

 

Cost of truck	Rs 1,20,000
Estimated life	10 years
Scrap value at the end of life	Rs 6,000
Diesel, oil, grease	Rs 25 per trip each way
Repairs and maintenance	Rs 500 p.m.
Driver's wage	Rs 600 p.m.
Cleaner's wage	Rs 250 p.m.
Insurance	Rs 4,800 p.a.
Tax	Rs 2,400
General supervision charges	Rs 6,000 p.a.

 

The truck carries goods to and from the city covering a distance of 50 miles each way.

On outward trip freight is available to the extent of full capacity and on return 20% of capacity.

Assuming that the truck runs on an average 25 days a month, work out:

1. Operating cost per tonne-mile
2. Rate per tonne per trip that the company should charge if a profit of 50% on freightage is to be earned.

[Ans: Cost per tonne-mile: Re 0.63; Profit 50% of freightage: Re 0.63; That is freight per
tonne-mile: Re 1.26; Freight per trip: 250 ë Rs 1.26 + 50 ë Rs 1.26 = Rs 378]

Illustration 27

SMC is a public school having five buses each plying in different directions for the transport of its school students. In view of a larger number of students availing of the bus service the buses work two shifts daily both in the morning and in the afternoon. The buses are garaged in school. The workload of the students has been so arranged that in the morning the first trip picks up senior students and the second trip plying an hour later picks up the junior students. Similarly in the afternoon the first trip takes the junior students and an hour later the second trip takes the senior students home.

The distance travelled by each bus one way is 8 km. The school works 25 days in a month and remains closed for vacation in May, June and December, Bus fee however, is payable by the students for all 12 months in a year.

The details of expenses for a year as under

 

Driver's salary	Rs 600 per month per driver
Cleaner's salary	Rs 350 per month
(Salary payable for all 12 months)
(One cleaner employed for all the five buses)
Licence fee, taxes, etc.	Rs 900 per bus per annum
Insurance	Rs 1,000 per bus per annum
Repairs and maintenance	Rs 3,500 per bus per annum
Purchase price of the bus	Rs 2,00,000 each
Life 12 years
Scrap value	Rs 20,000
Diesel cost	Rs 2.00 per litre
Each bus gives an average mileage of 4 km 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 up to 4 km of distance from the school are charged half fare. 50% of the students travelling in each trip in this category ignore interest. Since the charges are to be based on average cost, you are required to:

1. Prepare a statement showing the expenses of operating a single bus and the fleet of five buses for a year.
2. Work out the average cost per student per month in respect of
   1. Students coming from a distance of up to 4 km from the school and
   2. Students coming from a distance beyond 4 km from the school.

Solution: SMC Public School

Operating cost statement

 

 

Working Note:

1. Calculation of diesel cost per bus:

    

   Number of trips of 8 km each/day: 8

   Distance travelled per day by a bus: 8 × 8 km/trip = 64 km

   Distance travelled during a month: 64 × 25 = 1,600 km

   Distance travelled p.a. (May, June: 1,600 × 9 = 14,400 km and December being vacation)

   Mileage: 4 km/litres

   Diesel required: 14,400/4 = 3,600 litres.

   Cost of diesel: 3,600 litres × Rs 2 per litre = Rs 7,200 p.a. per bus.

2. Calculation of number of students per bus:

   Bus 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 per trip		75 students
   Total number of half fare students in two trips		150 students
   On full fare basis number of students in two trips		75 students

 

Problem 11. From the following information, calculate total kilometres and total passenger kilometres:

 

No. of buses: 5

Days operated in the month: 25

Trips made by each bus: 4

Distance of route: 20 km, long (one side)

Capacity of bus: 50 passengers

Normal passenger travelling: 90% of capacity

 

(B. Com.)
[Ans: Total km: 20,000; Total passenger-km: 9,00,000]

Illustration 28

A state transport corporation has been in serious financial and operational difficulty due to the high prices of spares, rising fuel cost and high wages.

The running operational expenses have been worked out for a single deck bus and are reproduced below:

Total fleet—500 buses single—deck

Average passengers occupying each trip—40

List of expenses for one-year period ending 31-12-197

 

Variable expenses	Table for 30,000 km per bus per year (Rs)
(i) Fuel diesel oil	20,000
(ii) Tyres, tubes and batteries	5,000
(iii) Lubricants	1,500
(iv) Spare parts and accessories	4,500
(v) Wages, fringe benefits and bonus	28,000
Fixed expenses
(i) Road tax	1,500
(ii) Insurance	2,500
(iii) Rent for night parking garage	3,000
(iv) Maintenance garage establishment cost	2,000
(v) Original cost per bus Depreciation @ 15% straight line basis	2,50,000
Administrative expenses
(i) Administrative establishment cost (including salaries and PF)	14,00,000
(ii) Staff welfare cost	57,000
(iii) Retirement gratuity	50,000
(iv) Rates and taxes	50,000
(v) Travelling and conveyance	38,000
(vi) Postage, telephone and stationery	2,10,000
(vii) Audit fee	25,000
(viii) Electricity	70,000
(ix) Interest and bank charges	2,80,000
(x) Miscellaneous	40,000

Administrative overhead is to be absorbed in the operating cost on the basis of available number of budgeted operable fleet (calculated on the basis of total fleet less 15% breakdown).

You are required to advise management regarding the fare structure on cost plus 10% basis for the following stages of travel, assuming that the fare is charged in proportion to kilometres travelled.

 

	Minimum fare on
1st stage of travel	5 km (Rounded of
2nd stage of travel	10 km to nearest
3rd stage of travel	15 km paise)

Suggest suitable statistical data to be collected on a weekly basis for management information for effective operational control.

 

Solution:

State transport corporation operational expenses for the period ending 31-12-1978

 

 

Average passenger per bus—40

 

Cost per passenger per km	Rs 3.694/40 = 0.09235 paise
Cost per km	Rs 0.09235
Margin	0.009235
Fare per km	0.101 paise

 

The fare structure will be as follows:

 

Stage I	5 km × 0.101 p	= 0.505 paise
Stage II	10 km × 0.101 p	= 1.01

 

In order to have effective operational control, the following statistical data should be collected on a weekly basis for management.

1. Number of buses run per-day and kilometres covered per day budgeted figure of 40 passengers per bus.
2. Road breakdown
   1. Number of buses involved
   2. Kilometre lost
   3. Average fuel consumption per kilometre.

   4. Variable operational expenses against each item (for comparison with the budgeted expenses). If data are not available weekly, these should be submitted monthly.
   5. Total earning per day.

Problem 12. A transport company has been given a 10 km long route to run a bus. The bus costs Rs 50,000 and has been insured at 6% p.a., while annual taxes amount to Rs 2,000. Garage rent is Rs 100 p.m. Yearly repairs will be Rs 2,000 and the bus is likely to last for 5 years.

The driver's salary will be Rs 3,000 p.a. and that of conductor's Rs 1,800 p.a. in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Cost of stationery will be Rs 600 p.a. Manager's salary is Rs 400 p.m. who also looks after accounts.

Petrol and oil will be Rs 25 per 100 km. The bus will make 5 round trips each day carrying on the average 40 passengers on each trip. Assuming 25% profit on takings, calculate the bus fare to be charged from each passenger. The bus runs on an average 25 days in a month.

(Madras, 1985)

[Ans: Bus fare to be charged: Re 0.046 or 4.6 paise per passenger km; Passenger km per month:
1,00,000; Total cost per month excluding commission: Rs 2,992; Petrol: Rs 625;
Commission: Rs 460; Profit: Rs 1,151; Total takings per month: Rs 4,603]

Illustration 29

The new thermal power generating plant gives you the following data; find out in an appropriate cost sheet, cost of electricity per unit produced during the month of August 1978.

1. Fuel:

   Coal at the beginning of the month 500 tonnes.

   Supply during the month 1,100 tonnes

   Balance at the end of the month 400 tonnes.

   Annual contract for supply of coal for colliery at Rs 10 per tonne.

   Add: 10% to cover freight and handling charges.

2. Oil: 10 tonnes at Rs 250 per tonne.
3. Water: 50,000 litres. Pumping charges at 25 paise 100 per litre.
4. Depreciation of steam boiler: Capital value Rs 24,000 and the rate of depreciation 12½% per annum.
5. Salaries and wages of the boiler house:

   10 men at Rs 150 per month each.

   40 coolies at Rs 30 per month each.

6. Recovery on account of sale of ashes: 100 tonnes at Re 1 per tonne.
7. Salaries and wages of the generating station:

   50 men at Rs 150 per month each.

   20 coolies at Rs 30 per month each.

8. Repairs and maintenance of the generating equipment: Rs 2,600.

   Depreciation of generating equipment: Capital value:

   Rs 1,80,000 and the rate of depreciation 12½% p.a.

9. Share of administration charges: Rs 1,750
10. Number of units generated: 1,46,000.
11. Loss in the process 2,000 units generated.

Solution: Cost sheet (electricity generated

 

 

Illustration 30

Progressive Enterprises Limited runs a canteen for the benefit of its workmen and provides necessary subsidy to the canteen.

During month of August 1981, the following purchases were made:

 

Commodity	Quantity kg	Rate per kg Rs
1. Tea	4	10
2. Sugar	50	3
3. Milk	60	2
4. Atta	210	2
5. Flour	20	3
6. Vegetable ghee	30	11
7. Besan	12	4
8. Dal	30	3.50
9. Potato	90	2
10. Green vegetable	20	1.50
11. Spices	2	24

The other expenses for the month were : Rickshaw fare Rs 20 salary to cook (1) Rs 250 per month each. Wages to waiters (2) Rs 150 per month each. Supervisor's salary Rs 300 per month

Fuel, gas, coal, etc. Rs 400. Miscellaneous expenses crockery and glassware Rs 100. Depreciation of utensils and furniture Rs 50.

Sale of coupons 7,800 @ Re 0.15 per coupon.

Prepare trading and profit and loss account of the canteen for the month of August and find out the amount of subsidy paid by the company.

 

 

Solution: Trading and profit and loss account for the month of August 1981.

 

 

Canteen subsidy during the month of August 1981

 

 

Note: Cost sheet for the month of August 1981 to the above canteen can be prepared.

 

Illustration 31

The following cost data pertaining to the year 1964–1965 are collected from the books of ABC Power Company Limited

 

 

Coal consumed per kWh for the year is 1.5 lb and the cost of cool delivered to the power station is Rs 33.06 per metric ton. Depreciation rate chargeable is 4% per annum and interest on capital is to be taken at 1% higher than Reserve bank rate of 6% per annum.

 

 

Solution: Operating cost sheet of ABC Power Company Limited

 

 

Note: Cost of one tonne (2,205 1b) = Rs 33.06

 

 

Illustration 32

'Amitabh’ theatre in Bombay seeks your assistance in price determination. From the following data relating to April 1998, you are requested to

1. Compute cost per ‘Man Show'
2. Ascertain rates to be charged for each class of seating accommodation.

 

	Rs
Staff salaries per month	10,000
Monthly maintenance and cleaning	2,500
Electricity charges per month	2,000
Projector room supplies per month	12,000
Advertising expenditure per month	10,000
Hire-charges of print per month	30,000
General expenses	7,000
Revenue from slides shown per month	2,000

The theatre premises and building are valued at Rs 9,00,000. 6% on the capital cost per annum should be charged as depreciation. Rents collected from stalls in the theatre are Rs 8,400 per year. Depreciation of furniture & projector per month respectively are Rs 1,000 and Rs 500.

During April 1998, four shows with average attendance of 80% were run daily. Out of the seats occupied, 10% represent free passes and owner's connections.

Entertainment tax 50% of collections

Profit required 50% of net collections

The theatre contains 200 balcony, 300 first class and 500 second class seats. The weightage given is 3, 2, 1 respectively in terms of worth.

 

Solution: (1) Statement showing operating cost for April 1988

 

 

(2) Rates to be charged for each class of seating

  Second class = 2.08 × 1 = Rs 2.08

  First class = 2.08 × 2 = Rs 4.16

  Balcony = 2.08 × 3 = Rs 6.24

 

Working Note (1):

Man Shows = Seats × weightage × days × shows × occupancy × paid occupancy

Second class =

First class =

Balcony =

Total Man Shows for the month = 1,46,880

 

Working Note (2):

Computation of profit and tax per man show

If collections are	100
Less: Entertainment tax	50
Net collections	50
Less: Profit at 50% of net collections	25
Cost	25

 

Note: Entertainment tax is on ticket price. Profit is on net collections, which is ticket price less tax.

 

Problem 13. The data given relates to ‘Vasanth Talkies’ a mini theatre, for the year ending 31-3-1976.

 

Salaries:	Rs
One manager	800 p.m.
10 gate keepers	200 p.m. each
two operators	400 p.m. each
four clerks	250 p.m. each
Electricity and oil	11,655
Carbon	7,235
Sundry expenses	5,425
Advertising	34,710
Office expenses	18,000
Hire for prints	1,40,700

The theatre premises are valued at Rs 6,00,000 and the estimated life is 15 years. Projector costs Rs 3,20,000 on which 10% per annum depreciation is to be charged. Three shows are run daily throughout the year. The total capacity is 625 seats, which are divided into three classes as follows:

Janata circle 250 seats

Sanman circle 250 seats

Lords circle 125 seats

Ascertain cost per man show if

1. 20% of the seats remain vacant
2. Weightage for the classes is 1 : 2 : 3 respectively.

Determine the rates for each class if profit required is 30% on collections.

(Madras, 1983)

[Ans: Man shows 9,85,500 rate per man show = Re 0.50;
Rates: Janata: Re 0.50; Sanman: Re 1.00; Lords: Rs 1.50]

11.1.4 Hospital costing

The main purpose of hospital costing is to ascertain the cost of providing medical services. There are different departments in a hospital, which are generally formed on the basis of functions performed by them. The following are the main departments in a hospital:

1. Out-Patient Department (OPD)
2. Wards
3. Medical Service Departments as diagnostic X-ray, radiotherapy, pathology, and so on
4. General Service Department as boiler house, if any, power, heating, lighting, and so on: Catering, laundry, medical records, works maintenance, administration, and so on
5. Miscellaneous service departments as transport, dispensary, cleaning, and so on

Cost of department 5 will have to be apportioned to the other departments on equitable basis. Cost of departments 1–4 above can be determined separately with reference to the units of cost, which are given below:

 

OPD	Per out-patient attended
Wards	Per new out-patient attended or per case
Radiotherapy	Per course of treatment per day
Diagnostic X-ray	Per 100 units weighted points value.
Pathology	Per 100 requests
Boiler house	Per 1,000 lbs, steam raised
Power, heating and lighting, etc.	Per 1,000 cubic feet
Catering	Per person fed per week
Laundry	Per 100 articles laundered
Medical records	Per weighted unit
Works and maintenance	Per 1,000 cubic feet
Administration	Suitable percentage of turnover

 

Cost Statement

The expenses of a hospital can be broadly divided into two categories: (1) capital expenditure and (2) Maintenance expenditure—This includes salaries and wages, provisions, staff uniforms and clothing, patients’ clothing, medical and surgical appliances and equipments, fuel, light and power, laundry and water.

11.1.5 Hotel costing

Hotel industry is a service industry and covers various activities as provision for food and accommodation and providing other comforts like recreation, business facilities, shopping areas for shopping facilities. In order to provide the service, hotel industry is required to incur various expenses. Expenses may be fixed or variable. Fixed expenses comprise staff salaries, repairs and renovations, interior decoration, laundry contract cost, sundries and depreciation on fixed assets, variable expenses include lighting charges, attendants salaries and power charges.

In order to calculate the room rent to be charged per person, notional profit is added in the total operating cost and divided by the number of rooms available. The numbers of rooms available are calculated after taking into consideration various categories of suite, various seasons and occupancy percentage.

Room rents may be different during season and off-season. Sometimes besides accommodation, food facilities are also provided. Then cost of meals, direct wages (restaurant and kitchen, housekeeping & general) and direct expenses (of house keeping and restaurant) are taken into consideration. Indirect expenses are apportioned on equitable basis among the different concerned departments.

11.1.6 Canteen costing

Hotel, motels, restaurants and cafeterias also employ operating costing. The aim obviously is to find out the total cost of running the business and then on that basis to fix the tariff. How much to charge per customer, per room, per bed, per meal, per dish, and so on can be determined only when these establishments maintain a complete set of record pertaining to each element of cost. After-all hotelling is a business and has to be conducted with minimum of cost and maximum of profit. The hotel manager has to ensure this. However, the point not to be missed is that most of the factory canteens are subsidised. The main heads of expenditure here are:

1. Provision—vegetables, fruits, meat, flour, oil, milk, sugar, cream, tea, coffee and soft drinks
2. Labour cooks, waitresses, kitchen assistants, supervision and porters
3. Services—steam, gas, electricity, power and light water
4. Consumable stores—cutlery, crockery, glassware, table linen, mops and washing-up clothes, dying up clothes, cleaning materials, dustpans and brushes
5. Miscellaneous overhead—rent, rates, depreciation and insurance
6. Credit—charges for meals, tea and other sales

Illustration 33

The following cost data is available from the books of ABC Power Company, Limited for 1995. Prepare cost sheet showing cost of power generation per unit of kWh.

 

	Rs
Operating labour	16,500
Plant supervision	7,000
Lubricants and supplies	10,500
Repairs	21,000
Administration overheads	10,000
Capital cost	2,00,000

 

Total units of power generated 15,00,000. Coal consumed per kWh for the year is 1.5 pounds and the cost of coal purchased is Rs 33.06 per metric tonne. Depreciation is at 4% per annum and the interest on capital is to be taken at 7% per annum.

 

Solution: Operating cost sheet of ABC Power Company Limited for the year ended 1965

(15,00,000 kWh)

 

Particulars	Total Rs	Per kWh. Rs P.
Fixed charges:
Depreciation	8,000
Administration overheads	10,000
Interest on capital cost	14,000
Plant supervision	7,000
Total fixed charges (A)	39,000	0.026
Variable costs
Coal	33,735	0.0225
Operating labour	16,500	0.0110
Lubricants and supplies	10,500	0.0070
Repairs	21,000	0.0140
Total variable cost (B)	81,735	0.0545
Total cost (A + B)	1,20,735	0.0805

 

Working Note:

	Coal consumed
A metric tonne	= 2.205 pounds
Coal per kWh.	= 1.5 pounds
kWh produced	= 15,00,000
Total coal required (15,00,000 × 1.5)	= 22,50,000 pounds
Metric tons of coal	= 1,020.4081

 

 

Illustration 34

Find out the cost per unit of electricity generated in the powerhouse located in Eagle Engineering Works for the month of November 2001, with references to the following data extracted from the accounts books of works. The cost-sheet must be drawn up in the appropriation form:

Fuel:

 

Coal 1,200 tons @ Rs 11 per tonne

Coke 500 ton @ Rs 15 per tonne

Handling charges of the fuel at 50 P. per tonne

Ash removal charges—160 tonnes @ 25 P. per tonne

Cost of water pumped from the river—160 thousand gallons

@ 37 ½ P. per thousand gallon

Lubricating oil—50 gallons @ Rs 4 per gallon

 

Credit on account of

1. Sale of ashes—280 tonnes @ 25 P. per tonne
2. Cost of steam supplied to the manufacturing shops—30,000 therms @ Rs 10 per 1,000 therms

Salaries and wages of operating staff in the power house:

 

Foreman	1 @ Rs 600 per month
Assistant foremen	2 @ Rs 200 per month
Mechanics	4 @ Rs 150 per month
Coolie	1 @ Rs 4 per day for 30 days

 

Depreciation	Capital cost Rs	Rate of depreciation per annum
Boiler	50,000	6%
Generator and other electrical equipment	1,50,000	4%
Building	18,000	1%
25% share of monthly Total technical supervision charge	4,200
Total gross units generated	97,000 units
Loss during the month due to leakage in course of generation due to defective equipments	1,000 units

 

Solution

 

11.2 ADVANCED-TYPE SOLVED PROBLEMS

Illustration 35

Fast roadways runs 10 buses between two suburban centres which are 25 km apart seating capacity at each bus in 30 passengers. The expenses for the month of November 1994 were as under:

	Rs
Salaries of drivers and conductors	30,000
Salaries of mechanical staff	3,000
Diesel oil and lubricants	20,000
Taxes, insurance etc.	2,600
Repairs and maintenance	4,000
Depreciation	16,000

Seating capacity utilized was 60%.

All the buses ran 25 days at the month.

Each bus made four round trips daily.

1. Find out the cost per passenger-kilometre and the cost per round trip per passenger
2. What would have been the cost per passenger, if the seating capacity utilization were to go up to 80%.

3. What would have been the cost per round trip per passenger, if all the expenses (other than depreciation) were to go up by 20% at a seating capacity utilization of 80%?

Solution:

1. 1. Passenger km = 10 × 25 × 30 × 4 × 2 × 25 × 60/100

                             = 9,00,000

   2. Total cost = Rs 75,600
   3. Cost per passenger km = 75,600/9,00,000

                                            = Rs 0.084

   4. Cost per round trip passenger = 50 × 0.084

                                                       = Rs 4.20

2. Cost per round trip per passenger, if the seating capacity utilized were 80%
   1. Passenger km = 10 × 25 × 30 × 4 × 2 × 25 × 80/100

                             = Rs 12,00,000

   2. Total cost = Rs 75,600
   3. Cost per passenger km = 75,600/12,00,000

                                            = Rs 0.063

   4. Cost per round trip passenger = 50 × 0.063

                                                       = Rs 3.15

3. Cost per round trip passenger if all the expenses (other than depreciation) were to go up by 20% at seating capacity utilization of 80%
   1. Total cost = 16,000 + (71,520)

                       = Rs 87,520

   2. Passenger kilometre = Rs 12,00,000
   3. Cost per passenger kilometre = 0.0729
   4. Cost per round trip to passenger = 50 × 0.072

                                                           = 3.60

Illustration 36

Raja runs a fleet of taxis and the following information is available from the rewards maintained by Rim.

 

1. Number of taxis	10
2. Cost of each taxi	Rs 20,000
3. Salary of manager	Rs 600 p.m.
4. Salary of accountant	Rs 500 p.m.
5. Salary of cleaner	Rs 200 p.m.
6. Salary of mechanics	Rs 400 p.m.
7. Garage rent	600 p.m.
8. Insurance premium	5% p.a.
9. Annual tax	Rs 600 per taxi
10. Driver's salary	Rs 200 p.m. per taxi
11. Annual repairs	Rs 1,000 per taxi

 

Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 km in a month at which 30% of it runs empty. Petrol consumption is one litre for 10 km @ Rs 1.80 per litre. Old and other sundries are Rs 5 per 100 km.

Calculate the cost of running a taxi per km.

 

Solution:

Fixed expenses:

 

	Amount p.m. Rs	Cost per km
Salary of manager	600
Salary of accountant	500
Salary of cleaner	200
Salary of mechanics	400
Garage rent	600
Insurance premium 5% on 2,00,000	833.33
Driver's salary 200 × 10	2,000
Tax 600 × 10/12	500
Total fixed expenses	5,633.33
Effective kilometre 2,100 × 100 = 21,000 Fixed expenses per km		0.268

 

Running expenses:

 

Depreciation	20,000/1,40,000	0.143
Repairs		0.040
Petrol		0.257
Oil and other sundries		0.071
	Cost per km	0.779

 

Illustration 37

Raja automobiles distributes its good to a regional dealer using a single lorry. The dealer's premises are 40 km away by road. The lorry has a capacity of 10 tonnes and makes the journey twice a day fully loaded on the outward journeys and empty on return journeys. The following information is available for a four-weekly period during the year 1991.

 

Petrol consumption	8 km per km
Petrol cost	Rs 6.50 per litre
Oil	Rs 50 per week
Driver's wages	Rs 200 per week
Repairs	Rs 50 per week
Garage rent	Rs 75 per week
Cost of lorry	80,000 km
Insurance	Rs 3,250 p.a.
Cost of tyres	Rs 3,125
Life of tyres	25,000 km

 

Estimated sale value of Rs 25,000 lorry at end of its life. Vehicle licence cost Rs 650 p.a. Other overhead rate Rs 20,800 p.a. The lorry operates on a five-day week.

Required:

1. A statement to show the total cost of operating the vehicle for a four-weekly period analysed into running costs and fixed costs.
2. Calculate vehicle cost per km and per ton-km

 

Solution

 

Running costs (Rs):
Petrol cost	2,600
Oil expenses	200
Driver's wages	800
Repairs	200
Tyre cost	400
Depreciation	8,000
Total running cost (A)	Rs 12,200
Fixed costs (Rs):
Garage rent	300
Insurance	250
Licence cost	50
Other overhead cost	1,600
Total fixed cost (B)	2,200
Total cost (A) + (B)	Rs 14,400

 

(b) Cost per kilometre:

 

 

Cost per ton kilometre:

 

 

Working Notes:

1. Cost of petrol

    

   

    

2. Cost of tyres:

    

   

    

3. Depreciation of lorry:

    

   

    

4. 
5. 
6. 

Illustration 38

Raja has been promised a contract to run a tourist car on a 20 km long rate for the chief executive of a multinational firm. He buys a car costing Rs 1,50,000. The annual cost of insurance and taxes are Rs 4,500 and Rs 900, respectively. He has to pay Rs 12,500 p.m. for a garage where he keeps the car when it is not in use. The annual repair are estimated at Rs 4,000. The car is estimated to have a life at 10 years, at the end of which the scrap value is likely to be Rs 50,000.

He hires a driver who is to be paid Rs 300 p.m. plus 10% of the takings ads commission. Other incidental expenses are estimated at Rs 200 p.m. Petrol and oil will cost Rs 100 per 100 km. The car will make four round trips each day. Assuming that a profit of 15% on taking is desired and that the car will be on the road for 25 days on an average per month, what should be charge per round trip?

Solution

 

	Per annum (Rs)	Per month (Rs)
Standing charges:
Insurance	4,500
Taxes	900
Garage rent (500 × 12)	6,000
Driver's salary (300 × 12)	3,600
Incidental expenses (200 × 12)	2,400
	17,400	1,450
Running expenses:
Depreciation (10,000/12)	833.33
Petrol and oil (100 × 4,000/100)	4,000
Annual repairs (4,000/12)	333.33
Commission	882.22
Profit	1,323.34
	8,822.22

 

 

Working Notes:

1. Computation of total takings:

   Let x be the total takings per month

   Pricer's commission is 10% of x of = x/10

   Profit = 15% of x = 15/100 x = 3x/20

   Total takings per month = Total cost + driver's commission + profit

    

   

    

2. Profit =
3. Commission =
4. kms run = 20 km × 2 × 4 × 25 days = 4000 km
5. A tram port service company is running five buses between two towns which are 50 km apart. Seating capacity of each bus in 50 passengers. The following particulars were obtained from their books for March 2003.

 

	Rs
Wages for drivers, conductors and cleaners	12,000
Salaries of office staff	5,000
Diesel oil and other oil	17,500
Repairs and maintenances	4,000
Taxation, insurance, etc.	8,000
Depreciation	10,000
Interest and other expenses	10,000
	66,500

 

Actually, passengers carried were 75% of seating capacity. All buses ran on all days of the month. Each bus made one round trip per day.

Find out the cost per passenger-km.

 

Solution: Operating cost statement

 

Standing charge:
Wages of drivers, conductors and cleaners	12,000
Salaries of office staff	5,000
Taxation, insurance, etc.	8,000
Interest and other expenses	10,000
(A)	35,000
Running cost:
Repairs and maintenance	4,000
Diesel and other oil	17,500
Depreciation	10,000
(B)	31,500

 

 

Illustration 39

A factory which uses a large amount of coal is situated between two colliery X and Y, the former being 5 km and the latter 10 km distant from the factory. A fleet of lorries of 5 tonne carrying capacity is used for the collection of coal from the pitheads. The lorries average a speed of 20 km per hour when running and regularly take 10 minutes in the factory premises to unload. At colliery X loading time averages 30 minutes per load and at colliery Y 20 minutes per load.

Driver's wages, licences, insurance, depreciation, garage and similar charges are noticed to cost Rs 6 per hour opened. Fuel, oil tyres repeats and similar changes are noticed to cost to paisa per kilometre run.

Recap a statement stating the cost per tonne-kilometre of carrying coal from each colliery. If the coal is of equal, quality and price at pithead from which colliery should the purchases be made?

Solution: Statement showing cost per tonne-kilometre

 

	Colliery X	Colliery Y
Time taken per trip*	1 hr 10 minutes	1 hr 30 minutes
Fixed cost per trip @ Rs 6 per hour	7.00	9.00
Running cost per trip @ Rs 60 per km	6.00	12.00
Cost per trip	13.00	21.00
Ton-km **	25	50
Cost per ton-km	0.52	0.42
Cost per tonne	2.60	4.20
It consists of:	colliery X	colliery Y
To and fro travelling time	30 minutes	1 hr
Loading time	30 minutes	20 minutes
Unloading time	10 minutes	10 minutes
	1 hr 10 minutes	1 hr 30 minutes
Ton-km
Journey from colliery	5 tonne × 5 km = 25	5 tonne × 10 = 50
Journey to colliery	0 × 5 = 0	0 × 10 = 0
*Total ton km	25	50

 

Illustration 40

Union transport company supplies the following details in respect of a truck of 5 tonne capacity.

 

Cost of truck—Rs 90,000

Estimated life—10 years

Diesel, oil, grease—Rs 15 per trip each day

Repairs and maintenance—Rs 500 p.m.

Driver's wages—500 p.m.

Cleaner's wages—250 p.m.

Insurance—Rs 4,800 per year

Tax—Rs 2,400 per year

General supervision charges—Rs 4,800 per year

 

The track carries goods to and from the city covering a distance at 50 km each way, on outward trip freight is available to the extent of full capacity and on return 20% of capacity.

Assuming that the truck runs on an average 25 days a month workout:

1. Operating cost tonne km
2. Rate per tonne trip that the company should charge if a profit of 50% on freight is to be earned.

Solution:

 

 

1. Operating cost = 0.500 per ton-km
2. Freight rate:

    

   Cost per ton-km	0.50
   Profit per ton-km	0.50
   	1.00

 

Freight per trip both ways 300 tons-km @ Rs 1

(Track makes only one trip a day, ton-km covered in a trip would be 7,500/25)

Working Notes:

1. Ton-km per month

   6 ton × 50 km × 25 days = 7,500 ton-km

   5 ton on outwards trip and 1 ton on return trip

    

   

    

2. It is assumed that the truck makes only one trip per day.
3. The scrap value of the truck is assumed to be ‘nil’. Hence, the total amount to be depreciated in a year is 90,000/10 = Rs 9,000

CHAPTER SUMMARY

Having gone through this chapter, one would be able to understand the relevance of operating costing while fixing the cost/fares in transport sector, power sector, cinema houses, canteens and lodges. It helps one to understand the method in which the expenses are segregated to fix the cost/fares.

EXERCISE FOR YOUR PRACTICE

Objective Type Questions

I. State whether the following statements are True or False

1. Service costing is applicable in canteens.
2. The unit used in service costing is simple.
3. Motor cost for passengers is referred to per passenger kilometre.
4. Service costing is one of the basic methods of operating costing.
5. Operating cost statement is prepared to calculate the cost in case of service costing.
6. Service costing and process costing are the same.
7. Under service costing depreciation is always fixed.
8. Drivers wages when based on distance covered is fixed in nature.
9. Kilometre run and effective kilometre are the same.
10. Powerhouse costing and boiler house costing are the same.

[Ans: 1—true, 2—false, 3—true, 4—true, 5—true, 6—false, 7—false, 8—false, 9—false, 10—false]

 

II. Choose the correct answer

1. The Tamil Nadu Transport Corporation must use
   1. job costing
   2. contract costing
   3. process costing
   4. operating costing

2. Composit unit is a distinctive feature of
   1. single costing
   2. operating costing
   3. process costing
   4. job costing
3. Service costing is adopted by
   1. cinema houses
   2. electricity companies
   3. gas supply
   4. all the above
4. Classification and accumulation of costs by fixed and variable cost is of special importance in
   1. service costing
   2. job costing
   3. contract costing
   4. batch costing
5. Canteens apply
   1. contract costing
   2. job costing
   3. service costing
   4. batch costing
6. Motor costs for passengers is ascertained with reference to
   1. per seat occupied
   2. per distance travelled
   3. per ticket sold
   4. per passenger per kilometre
7. In hospitals, the cost unit is
   1. per bed
   2. per tablet
   3. per doctor
   4. per patient
8. The cost unit in a electricity generating concerns is
   1. per tube light
   2. kilo watt
   3. per metre
   4. per main
9. Garage rent is classified under
   1. direct expense
   2. indirect expense
   3. standing charges
   4. machine expenses
10. The cost unit for water supplies is
    1. per 1,000 gallons
    2. per lorry
    3. per dozen litres
    4. per consumer

[Ans: 1. d, 2.b, 3.d, 4.a, 5.c, 6.d, 7. a, 8.b, 9.d, 10. a]

DISCUSSION QUESTIONS

Short Answer-Type Questions

1. What do you understand by operating costing?
2. In what industries operating costing is used?
3. Write a note on
   1. transport costing
   2. boiler costing
   3. canteen costing
4. Explain the terms passenger kilometre and tonne-kilometre.
5. Illustrate the term effective kilometre run.

Essay-Type Questions

1. Explain the important objectives of transport costing.
2. Give the accounting procedure for transport costing.
3. Write a detailed note on hospital costing.
4. Explain about hotel costing.

PROBLEMS

1. A transport company is running four buses between two towns, which are 50 km apart.

    

   Seating capacity of each bus is 40 passengers.

   Actual passengers carried were 75% of seating capacity.

   All the buses run on 30 days.

   Each bus made one round trip per day.

   Find out the total passenger-kilometres.

   B. Com., Calicut)

   [Ans: 3,60,000 passenger-kilometres]

2. A transport service company is running four buses between two towns 50 miles apart. Seating capacity of each bus is 40 passengers. The following particulars were obtained from their books:

    

   	Rs
   Wages of drivers, conductors and cleaners	2,400
   Salaries of office and supervisory staff	1,000
   Diesel oil and other oil	4,000
   Repairs and maintenance	800
   Taxation, insurance, etc.	1,600
   Depreciation	2,600
   Interest and other charges	2,000
   	14,400

    

   Actual passengers carried were 75% of the seating capacity. All the four buses ran on all the days of the month. Find out the cost per passenger mile.

   (B. Com., Delhi, C.A., Inter)

   [Ans: Re 0.04]

3. A transport company is running two buses between two places 100 km apart. Seating capacity of each bus is 50 passengers. The following particulars are taken from their books for a month.

    

   	Rs
   Wages of drivers, conductors and cleaners	3,000
   Salary of supervisory and office staff	1,500
   Diesel, oil, etc.	6,000
   Repairs and maintenance	1,500
   Taxation and insurance	2,000
   Depreciation	3,000
   Interest and other charges	2,500

    

   Actual passengers travelled were 80% of the capacity. The buses ran on all the days. Each bus made a to and fro trip. Find out the cost per passenger-kilometre.

   (B. Com., Madras)

   [Ans: Re 0.041]

4. A cinema hall has seating capacity of 800. It runs daily 4 shows on all 30 days of a month. It is generally full to the extent of 80% of its capacity. Find out the number of man shows during the month.

   [Ans: 76,800 man shows]

   Computation of cost units

5. 1. Passenger kilometres

      A transport company is running four buses between two towns, which are 50 km apart.

      Seating capacity of each bus is 40 passengers. Actual passengers carried were 75% of seating capacity, on an average.

      All the buses run 30 days in a month.

      Each bus made one round trip per day.

      Find out the total passenger-kilometres per month.

      (B.Com., Calicut)

      [Ans: 3,60,000 passenger km]

   2. Running kilometres

      Pankajam travels employ 5 buses, which run over a route of 140 km (one way), making one round trip per day. The buses run 360 days per year and 10% of them on average are laid out for repairs. Ascertain the total running kilometres per year.

      [Ans: 4,53,600 running km]

   3. Tonne-kilometres

      Vasan owns a lorry of six tonne capacity. During a month, it went on trips 20 days, covering on average 200 km each day. 40% of the time it ran empty. It carried an average load of 80% of capacity during the period.

      Find out the total ‘tonne-kilometres’ for the month.

      [Ans: 11,520 ton-km]

   4. Room days

      Calculate the total ‘Room days’ from the following details.

      1. No. of rooms—40 double and 100 single
      2. Weightage based on value: double room—2 and single room—1
      3. Room occupancy—Busy season—double rooms 80% and single rooms 90%. Slack season—double rooms 50% and single rooms 40%.
      4. Slack season—240 days and busy season 120 days.

      [Ans: 37,680 room-days]

6. 1. Running kilometres and passenger kilometres

      From the following information, calculate total running kilometres and total passenger kilometres.

      Number of buses: 5; days operated in a month: 25; trips per day made by each bus: 4;

      Distance of route: 25km (one side).,capacity of bus: 50 passengers. average passenger travelling—90% of capacity.

      (Madras, 2001)

      [Ans: 25,000 running km; 11,25,000 passenger km]

      Hint: Assume trips per day made as round trips.

   2. Raj travels operates a 60 seater luxury bus as follows:
      1. 10 days in a month Chennai to Tirupathi one round trip (200 km one way) every day. Average occupancy 90%.
      2. 14 days a month Chennai to Bangalore, a round trip (300 km one way) per day. Average occupancy 80%.
      3. six days in a month Chennai local, covering about 200 km a day, with 100% occupancy. Ascertain (a) running km (b) passenger km.

      [Ans: (a) 13,600 running km; (b) 6,91,200 passenger km]

   3. (Man shows)

      A cinema hall has three types of seating accommodation—balcony, 1st class and 2nd class with weightages of 3, 2 and 1 respectively on the basis of their worth. There were 300 seats in balcony, 400 seats in 1st class and 500 seats in 2nd class. The cinema hall runs daily four shows on all 30 days in a month. The average occupancy of seats is 80%.

      Find out the number of man shows in a month.

      [Ans: 2,11,200 man shows]

   4. Tonne-kilometres

      From the following information, calculate total tonne-kilometres:

      Number of lorries: 10; capacity: 5 tons each; days operated: 25 days per month; trips made by each lorry: one trip a day of a distance of 120 km; average load carried 80% of capacity; empty running—40% of the total running distance.

      [Ans: 72,000 ton-km]

7. 1. Passenger kilometres

      From the following calculate the total passenger kilometres.

      Number of buses—10; number of days operated in a month—28; number of trips by each bus per day—2 trips; distance of route—25 km (one side); capacity of the bus—50 passengers; normal operating capacity—80%.

      (B.Com., Mysore)

      [Ans: 11,20,000 passenger km]

      Hint: Assume trips by bus as round trips.

   2. Tonne-kilometres

      Chennai City Corporation employs 200 trucks for garbage clearance. Their capacities are as follows:

       

      40 trucks	6 ton
      80 trucks	5 ton
      80 trucks	4 ton

       

      The trucks operate on all 30 days a month, making five trips a day, covering 10 km in each trip. They carry an average 80% capacity load. On average 20% of the vehicles are in garage for maintenance work.

      Calculate the tonne-kilometres per month.

      [Ans: 9,21,600 ton-km]

   3. Passenger kilometres

      Calculate the passenger kilometres covered by a fleet of four taxis run by CNN Travels from Hyderabad to Bhuvanagiri (45 km) and back four trips each day with five passengers on an average on each vehicle, for the month of April 1992.

      (Osmania, 1993)

      [Ans: 2,16,000 passenger km]

8. From the following data calculate the cost per mile of a vehicle:

    

   	Rs
   Value of vehicle	15,000
   Road licence for the year	500
   Insurance charges per year	100
   Garage rent per year	600
   Driver's wage per month	200
   Cost of petrol per litre	0.80
   Miles per litre	8
   Proportionate charge for tyre and maintenance per mile	0.20
   Estimated life	1,50,000 miles
   Estimated annual mileage	6,000 miles

    

   Ignore interest on capital.

   (Madras, 1988)

   [Ans: Cost per mile of vehicle: Re 1.00]

9. The Union Transport Company supplies the following details in respect of a truck of 5 tonne capacity:

    

   Cost of truck	Rs 90,000
   Estimated life	10 years
   Diesel, Oil, grease	Rs 15 per rip each way
   Repairs and maintenance	Rs 500 per month
   Driver's wages	Rs 500 per month
   Cleaner's wages	Rs 250 per month
   Insurance	Rs 4,800 per year
   Tax	Rs 2,400 per year
   General supervision charges	Rs 4,800 per year

    

   The truck carries goods to and from the city covering a distance of 50 miles each way.

   While going to the city, freight is available to the extent of full capacity and on return 20% of the capacity.

   Assuming that the truck runs on an average 25 days a month.

   Work out:

   1. Operating cost per ton-mile and
   2. Rate per ton per trip that the company should charge, if a profit of 50% on freightage is to be earned.

   (B. Com. Hons., Delhi)

   [Ans: (i) Re 0.50; (ii) Rs 50.00]

10. Shriman operates a taxi. Compute cost per running km from the following details.

     

    	Rs
    Purchase price of taxi	50,000
    Insurance per annum	1,000
    Rent of garage per month	100
    Tyres and tubes per set (A set lasts 16,000 km)	4,000
    Driver's wage per day of 8 hours	32
    (Average distance per day 160 km)
    Fuel cost per gallon (A gallon lasts 24 km)	12
    Repairs per annum	1,200
    Stand and police payments p.a.	2,600
    Interest on bank loan for the taxi p.a.	4,000
    Kilometres run per annum	20,000
    Life of the taxi (in km)	1,00,000

     

    [Ans: Cost per running km: Rs 1.95]

11. From the following data you are required to ascertain the cost of running the motor lorry per tonne-mile.

     

    Total tonnage carried in a week: 30

    Total mileage in a week: 600 miles

     

    Details of the above are:

     

    	Miles	Tons
    Monday	120	6
    Tuesday	125	5
    Wednesday	110	4
    Thursday	100	5.5
    Friday	80	4.5
    Saturday	65	5.0
    	600	30

     

    Expenses for the week are as follows:

     

    Driver's salary: Rs 600 p.m.

    Cleaner's salary: Rs 200 p.m.

    Petrol, oil, etc.: Rs 1.00 per mile

    Repair and maintenance: Rs 300 p.m.

    Depreciation: 4,800 p.a.

    Other expenses: 500 p.m.

    Assume: 4 weeks in a month.

     

    (B. Com., Madurai)

    [Ans: Re 0.37]

12. Raja runs mini bus service in the town and has two vehicles. He furnishes you the following data and wants you to compute the cost per running mile.

     

    	Vehicle A Rs	Vehicle B Rs
    Cost of vehicle	25,000	15,000
    Road licence (per year)	750	750
    Salaries (yearly)	1,800	1,200
    Driver's wage per hour	4	4
    Cost of fuel per litre	1.50	1.50
    Maintenance per mile	1.50	2.00
    Tyre cost per mile	1.00	.80
    Garage rent per year	1,600	550
    Annual insurance premium	850	500
    Miles run per litre	6	5
    Miles run during the year	15,000	6,000
    Estimated life of vehicles	1,00,000 miles	75,000 miles

     

    Charge interest at 10% p.a. on the cost of vehicle. The vehicle runs 20 miles per hour on an average.

    (Madras, 1999)

    [Ans: Cost per running mile: Vehicle A: Rs 3.70; Vehicle B: Rs 4.25]

13. From the following data relating to two vehicles A & B, compute the cost per running mile.

     

    	Vehicle A Miles	Vehicle B Miles
    Mileage run (annual)	15,000	6,000
    Estimated life of vehicles	1,00,000	75,000
    Miles run per gallon of fuel	20	15
    	Rs	Rs
    Cost of vehicle	25,000	15,000
    Road tax (annual)	750	750
    Insurance (annual)	700	400
    Garage rent (annual)	600	500
    Supervision & salaries	1,200	1,200
    Drivers wages per hour	3	3
    Cost of fuel per gallon	3	3
    Tyres allocation per mile	0.80	0.60
    Repairs and maintenance per mile	1.65	2.00

     

    Charge interest at 5% per annum on cost of vehicles. The vehicles run 20 miles an hour on average.

    (Bharathiar, 1994)

    [Ans: Cost per running mile A: Rs 3.30; B: Rs 3.75]

14. The Road Transport Company, which keeps a fleet of lorries, shows the following information:

     

    Kilometres run for April 1994	30,000
    Wages for April	Rs 2,000
    Petrol, oil, etc. for April	Rs 4,000
    Original cost of vehicles	Rs 1,00,000
    Depreciation to be allowed @ 25% per annum on original cost
    Repairs for the month of April	Rs 6,000
    Garage rent, etc. for April	Rs 1,000
    Licence, Insurance, etc. for the year	Rs 6,000

     

    Prepare a statement for April 1994 showing the fixed and variable cost per running km.

    (M. Com., Madras)

    [Ans: Re 0.52]

15. From the following particulars, calculate the cost of running a taxi per kilometre:

     

    1. Number of taxis	10
    2. Cost of each taxi	Rs 2,00,000
    3. Salary of manager	Rs 6,000 p.m.
    4. Salary of accountant	Rs 5,000 p.m.
    5. Salary of cleaner	Rs 2,000 p.m.
    6. Salary of mechanics	Rs 4,000 p.m.
    7. Garage rent	Rs 6,000 p.m.
    8. Insurance premium	5% p.a.
    9. Annual tax	Rs 6,000 per taxi
    10. Drivers salary	Rs 2,000 per month per taxi
    11. Annual repair	Rs 10,000 per taxi

     

    Total life of a taxi is about 2,00,000 km. A taxi runs in all 3,000 k.m. in a month of which 30% of it runs empty. Petrol consumption is one litre for 10 km at Rs 18 per litre. Oil and other sundries are Rs 50 per 100 km.

    (Madras, 1991)

    [Ans: Cost of running a taxi per effective kilometre: Rs 7.793;
    Cost per taxi per month: Rs 16,366; Effective running km
    per month per taxi: Rs 2,100]

16. Sohan Singh has started transport business with a fleet of 10 taxis. The various expenses incurred by him are given below:
    1. Cost of each taxi—Rs 75,000
    2. Salary of office staff—Rs 1,500 p.m.
    3. Salary of garage staff—Rs 2,000 p.m.
    4. Rent of garage—Rs 1,000 p.m.
    5. Driver's salary (per taxi) —Rs 400 p.m.
    6. Road tax and repairs per taxi—Rs 2,160 p.a.
    7. Insurance premium at 4% of cost p.a.

    The life of a taxi is 3,00,000 km at the end of which it is estimated to be sold at Rs 15,000. A taxi runs on an average 4,000 km per month of which 20% of it runs empty. Petrol consumption is 9 km per litre of petrol costing Rs 6.30 per litre. Oil and other sundry expenses amount to Rs 10 per 100 km.

    Calculate the effective cost of running taxi per kilometre. If the hire charge is Rs 1.80 per km, find out the profit Sohan Singh may expect to make in the first year of operation.

    (ICWA)

    [Ans: Effective cost of running taxi per km: Rs 1.65; Effective km per month: 3,200;
    Total cost per month: Rs 5,280; Profit in first year: Rs 57,600; Total collections:
    3,200 × 12 × 10 × 1.80 = Rs 6,91,200; Total cost 5,280 × 12 × 10 = Rs 6,33,600]

17. From the following data, calculate the cost per kilometre of a vehicle:

     

    	Rs
    Value of vehicle	75,000
    Road licence fee per year	500
    Insurance per year	100
    Garage rent per year	600
    Driver's wage per month	500
    Cost of petrol per litre	6.00
    Kilometres run per liter	8
    Proportionate charge for tyre and maintenance per km	0.40
    Estimated life	1,50,000 km
    Estimated annual kilometres	6,000
    Ignore interest on capital

     

    (B. Com., Mysore)

    [Ans: Rs 2.85]

18. From the following data relating to a lorry of 4 tonne capacity, you are required to compute the operating cost per tonne-mile.

     

    Truck cost	Rs 1,00,000
    Estimated life in years	10
    Maintenance	Rs 500 p.m.
    Payment to driver and cleaners	Rs 750 p.m.
    Annual insurance	Rs 1,200
    Establishment charges	Rs 650 p.m.
    Fuel per month	Rs 600
    Sundry expenses en route	Rs 2,000 p.a.

     

    The lorry goes to a town 50 miles away with full load and comes back empty for 20 days in a month.

    [Ans: Cost per tonne-mile Re 0.90]

19. From the following data relating to vehicle ‘A’ compute the cost per running ton-km.

     

    	Vehicle A
    Kilometres run (annual)	15,000
    Tons per km (average)	6
    	Rs
    Cost of vehicle	2,50,000
    Road licence (annual)	800
    Insurance (annual)	700
    Garage rent (annual)	1,300
    Supervision and salaries p.a.	2,700
    Driver's wages per hour	4
    Cost of fuel per litre	6
    Kilometres run per litre	20
    Tyre allocation per km	1
    Repairs and maintenance per km	2

     

    Estimated life of vehicles 1,00,000 km

    Charge interest at 5% per annum on cost of vehicle.

    The vehicle runs 20 km per hour on an average.

    (Madras, 1991)

    [Ans: Cost per running ton-km: Rs 1.20; Total ton-km per annum 90,000 (15,000 ë 6)]

20. The following figures are extracted from the books of a firm for the year 1994.

     

    Passenger buses	5 Numbers
    Bus costing	Rs 50,000; Rs 1,20,000; Rs 45,000 Rs 55,000 and Rs 80,000
    Depreciation 20% of the cost per annum
    Annual repair and spare parts, etc. 80% of depreciation
    Wages of 10 drivers	Rs 600 each per month
    Wages of 20 cleaners	Rs 300 each per month
    Interest	8% on capital
    Rent of 6 garages	Rs 100 each per month
    Director fees	Rs 900 per month
    Office establishment	Rs 6,000 per month
    Licence and taxes	Rs 4,000 half yearly

     

    Realisation of sale of old tyres and tubes: Rs 3,600 half yearly. 900 passengers were carried over 1,600 km during the year. Work out in the appropriate cost sheet, the unit cost per passenger kilometres.

    (B.Com., Madurai)

    [Ans: Paise 27]

21. From the following, data relating to vehicle ‘X’ calculate the cost per running kilometre.

     

    	Vehicle X
    Kilometres run (annual)	15,000
    Tons per km (average)	6
    Cost of vehicle	Rs 25,000
    Road licence (annual)	Rs 750
    Insurance (annual)	Rs 700
    Garage rent (annual)	Rs 900
    Supervision and salaries	Rs 2,400
    Drivers wages per hour	Rs 3
    Cost of fuel per litre	Rs 3
    Kilometres run per litre	20
    Repairs and maintenance per km	Rs 1.75
    Tyre allocation per km	90 paise
    Estimated life of vehicle	1,00,000 km

     

    Charge interest at 5% p.a. on cost of vehicle. The vehicle runs 20 km per hour on an average.

    (Madras, 1987)

    [Ans: Cost per running ton-km: Re 0.60; Cost per running km: Rs 3.60; Total running ton-km = 90,000 (15,000 ë 6)]

22. XY & Co. owns a fleet of 10 trucks each costing Rs 60,000. The company has employed one manager to whom it pays Rs 450 p.m., an accountant who gets Rs 250 p.m. and a peon who gets Rs 100 p.m. The company has got its trucks insured @ 2% per annum. The annual total tax is Rs 1,200 per truck. The other expenses are as follows:

     

    Driver's salary	Rs 200 p.m.
    Cleaner's salary	Rs 80 p.m.
    Mechanic's salary	Rs 300 p.m.
    Repairs and maintenance	Rs 1,200 per year for one truck.
    Diesel consumption	3 km per litre at Re 0.90 per litre
    Estimated life of the truck is 5 years.
    Other information:
    Distance travelled by each truck per day	200 km.
    Normal loading capacity	100 quintals
    Wastage in loading capacity	10%
    Percentage of trucks laid up for repairs	5%
    Effective days in a month	25

     

    Calculate (a) Cost per quintal km and (b) Cost per km of running a truck.

    (Madras, 1991)

    [Ans: (a) Cost per running km: Re 0.65579 (or) paise 65.58; Running km per month per truck:
    4,750; (b) Cost per quintal km: paise 0.73; Quintal km per month per truck: 4,27,500;
    Diesel per truck per month: Rs 1,425; Other costs: Rs 1,690]

    Hint: Mechanic's salary is for all 10 trucks. Diesel is not consumed when trucks are laid up for repairs.

23. A Transport Company operates two trucks. Following is the data regarding the monthly cost of operating them.

     

    	Trucks
    	A Rs	B Rs
    Driver's salary	250	275
    Cleaner's wages	150	160
    Petrol	300	350
    Mobil oil	25	30
    Garage rent	125	125
    Taxes and insurance	50	50
    Depreciation	560	620
    Supervision	100	100
    Repairs	120	140
    Overheads	40	40

     

    The two trucks carried 150 tonnes of goods each during the month of November 1989. The distances covered were 3,500 k.m. and 5,000 k.m. respectively.

    Prepare an operating cost sheet for November 1989 from the above data.

    (B.Com., Mysore)

    [Ans: Ton-km per month: Truck A: 5,25,000; Truck B: 7,50,000; Cost per ton-km: Truck A:
    Re 0.003276 (or) .33 paise; Truck B: Re 0.00252 (or) .25 paise]

    Costing for lodging houses – Cost per room-day

24. From the following data, find out the cost per ‘room-day’ and the charge to the customers if the profit required is 20% on cost.

     

    Room accommodation available

    50 double rooms

    100 single rooms

     

    Each double room is equal to two single rooms. Average occupancy throughout the year of 360 days is 75%.

    The costs are as follows:

     

    	Rs
    Depreciation of premises	1,00,000
    Depreciation of furniture	1,20,000
    Opening stock of linen	2,00,000
    Purchases of linen	1,00,000
    Closing stock of linen	1,50,000
    Salaries of staff	1,00,000
    Sundry charges	70,000

     

    [Ans: Room days: 54,000; Cost per room day: Rs 10; Charge per single room:
    Rs 12; Charge per double room: Rs 24]

25. Following is the information given by the owner of a hotel. You are required to advise him what rent should be charged from customers per day so that he is able to earn 25% profit on cost other than interest.
    1. Staff salaries Rs 80,000 per annum
    2. Room attendant's salary Rs 2 per day: The salary is paid on daily basis and services of room attendant are needed only when the room is occupied. There is one attendant for one room.
    3. Lighting, heating and power: The normal lighting expenses for a room are Rs 50. Power is used only in winter and normal charge per month if occupied for a room is Rs 20.
    4. Repairs to buildings Rs 10,000 per annum
    5. Linen, etc. Rs 4,800 per annum
    6. Sundries Rs 6,600 per annum

    7. Interior decoration and furnishing Rs 10,000 per annum
    8. Cost of buildings Rs 4,00,000. Rate of depreciation is 5%
    9. Other equipment Rs 1,00,000. Rate of depreciation is 10%
    10. Interest at 5% may be charged on its investments of Rs 5,00,000 in the buildings and equipment
    11. There are 100 rooms in the hotel and 80% of the rooms are normally occupied in summer and 30% of the rooms are occupied in winter.

    You many assume that period of summer and winter is six months each. Normal days in a month may be assumed to be 30.

    (Madras, 1996)

    [Ans: Room-days per annum 19,800 (14,400 + 5,400); Rent per room-day:
    Rs 15; Total cost for one year: Rs 2,97,000]

    Power house costing – Cost per kWh

26. From the following particulars, prepare operating cost sheet.

     

    Total units generated	20,00,000 kWh.
    Operating labour	Rs 50,000
    Repairs	Rs 50,000
    Lubricants	Rs 40,000
    Plant supervision	Rs 30,000
    Administration O.H.S.	Rs 20,000

     

    Coal consumed per kWh = 2.5 kgs., at Re 0.02 per kg.

    Depreciation at 5% on capital cost of Rs 20,00,000 per annum.

    (Madras, B.Com., March 87)

    [Ans: Cost per kWh: Re 0.195]