OPERATING COSTING

Operating Costing refers to computation of cost of service provided by service

providers. It is different from traditional product costing as services are
intangible and cannot be stored plus the major component of cost is employee
(labour) cost unlike products where the cost majorly constitutes cost of
materials.

To Compute Service cost, the cost unit applied needs to be a composite cost
(Compound unit) rather than a simple unit.

For E.g.

Service Providers Unit of Cost

Transportation of Passengers Passenger-km
Transportation of Goods Ton-Km
Hotel Room Days
Canteen Per item, per meal
Hospitals Patient per day or Bed per day etc.
Banks & F.I. Per transactions
Educational Institutions Per course, per student, per lecture
etc.

Composite Units can be computed in two ways:

For E.g in case of Ton-Kms as a composite unit. Tons is a Qualitative Unit and
Kms being quantitative

(i) Absolute Basis (Weighted Average)

∑(𝑊𝑒𝑖𝑔ℎ𝑡𝑠 × 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒)1 + (𝑊𝑒𝑖𝑔ℎ𝑡𝑠 × 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒)2 + ⋯ + (𝑊𝑒𝑖𝑔ℎ𝑡𝑠 × 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒)𝑛

(ii) Commercial Basis (Simple Average)

𝑊𝑒𝑖𝑔ℎ𝑡1 + 𝑊𝑖𝑒𝑔ℎ𝑡2 + ⋯ + 𝑊𝑒𝑖𝑔ℎ𝑡𝑛
∑(𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒1 + 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒2 + ⋯ + 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝑛 ) × ( )
𝑛
ILLUSTRATION 1

A Lorry starts with a load of 20 MT of Goods from Station ‘A’. It unloads 8 MT in

Station ‘B’ and balance goods in Station ‘C’. On return trip, it reaches Station ‘A’
with a load of 16 MT, loaded at Station ‘C’. The distance between A to B, B to C
and C to A are 80 Kms, 120 Kms and 160 Kms, respectively. COMPUTE “Absolute
MT - Kilometer” and “Commercial MT – Kilometer”.

(MT = Metric Ton or Ton)

A → 20 MT B → 12 MT C
- 80 km- - 120km -
16 MT 
- 160 kms -

SOLUTION:

Weighted Average or Absolute Basis (MT – Km)

= ∑[(𝟐𝟎 𝑴𝑻 × 𝟖𝟎 𝒌𝒎) + (𝟏𝟐𝑴𝑻 × 𝟏𝟐𝟎 𝒌𝒎) + (𝟏𝟔 𝑴𝑻 × 𝟏𝟔𝟎 𝒌𝒎𝒔)] = 𝟓, 𝟔𝟎𝟎 𝑴𝑻 − 𝒌𝒎

Simple Average or Commercial Basis (MT-km)

𝟐𝟎 𝑴𝑻+𝟏𝟐 𝑴𝑻+𝟏𝟔𝑴𝑻
= [(𝟖𝟎 𝒌𝒎 + 𝟏𝟐𝟎 𝒌𝒎 + 𝟏𝟔𝟎 𝒌𝒎) × ( ) = 𝟓, 𝟕𝟔𝟎 𝑴𝑻 − 𝒌𝒎
𝟑
 ILLUSTRATION 2

Equivalent Cost Unit/ Equivalent service Unit:

A hotel has three types of suites for its customers, viz., Standard, Deluxe and
Luxurious (Assume 360 days in a year)

Following information is given:

TYPE OF SUITE NUMBER OF ROOMS ROOM TARIFF

Standard 100 --
Deluxe 50 2.5 times of the
Standard suits
Luxurious 30 Twice of the Deluxe
suits
Compute Equivalent Cost Unit / Equivalent Service Unit:

(i) Making all suits equivalent to Standard suits

(ii) Making all suits equivalent to Luxurious suits

TYPE OF ROOM DAYS EQUIVALENT ROOM EQUIVALENT ROOM

SUITE DAYS (Standard) DAYS (Luxurious)
Standard = 100 × 360 36,000 Room - Days 1
= 36,000 ×
= 36,000 Room - Days 5
7,200 Room – Days
Deluxe = 50 × 360 = 18,000 × 2.5 𝑡𝑖𝑚𝑒𝑠 1
= 18,000 × 2
= 18,000 Room – Days 45,000 Room – Days 9,000 Room – Days
Luxurious = 30 × 360 = 10,800 × 2 × 2.5 10,800 Room – Days
= 10,800 Room – Days 54,000 Room – Days
1,35,000 Room – Days 27,000 Room - Days
COSTING OF TRANSPORT SERVICES

ILLUSTRATION 3

AXA Passenger Transport Company is running 5 buses between two towns, which
are 40 kms apart. Seating capacity of each bus is 40 passengers. Following
details are available from their books, for the month of April:

PARTICULARS AMOUNT (₹)

Salary of Drivers, Cleaners and Conductors S 24,000
Salary to Supervisor S 10,000
Diesel and other Oil R 40,000
Repairs and Maintenance M 8,000
Tax and Insurance S 16,000
Depreciation S 26,000
Interest S 20,000
1,44,000
Actual passengers carried were 75% of the seating capacity. All the five buses
run on all days for the month. Each bus made one round trip per day.
CALCULATE cost per passenger – Kilometre.

SOLUTION:

CALCULATION OF PASSENGER-KM

= 𝑫𝒊𝒔𝒕𝒂𝒏𝒄𝒆 × 𝑵𝒐. 𝒐𝒇 𝑻𝒓𝒊𝒑𝒔 × 𝑺𝒆𝒂𝒕𝒊𝒏𝒈 𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚 × 𝑼𝒔𝒆𝒅 𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚 × 𝑵𝒐. 𝒐𝒇 𝑫𝒂𝒚𝒔 × 𝑵𝒐. 𝒐𝒇 𝑩𝒖𝒔𝒆𝒔

= 𝟒𝟎 𝒌𝒎𝒔 × 𝟐 𝒕𝒓𝒊𝒑𝒔 × 𝟒𝟎 × 𝟕𝟓% × 𝟑𝟎 × 𝟓

= 3,60,000 Passenger – km

STATEMENT OF COST PER PASSENGER – KM

COST PER
SRN PARTICULARS COST PER MONTH
PASSENGER-KM
1. STANDING COSTS
Salary of Drivers,
Cleaners and Conductors 24,000
Salary to Supervisor 10,000
Tax and Insurance 16,000
Depreciation 26,000
Interest 20,000
96,000 0.267
2. RUNNING COST
Diesel and other Oil 40,000 0.111

3. MAINTENANCE COST
Repairs and Maintenance 8,000 0.022
TOTAL 1,44,000 0.400
COST PER PASSENGER-KM is ₹ 0.4
ILLUSTRATION 4

ABC Transport Company has given a route 40 kilometers long to run bus.

(a) The bus costs the company a sum of ₹ 10,00,000

(b) It has been insured at 3% p.a. and S
(c) The annual tax will amount to ₹ 20,000 S
(d) Garage rent is ₹ 20,000 per month. S
(e) Annual repairs will be ₹ 2,04,000 M
(f) The bus is likely to last for 2.5 years Depreciation → S
(g) The driver’s salary will be ₹ 30,000 per month and the conductor’s salary will
be ₹ 25,000 per month in addition to 10% of takings as commission [To be
shared by the driver and conductor equally]. S R (Commn)
(h) Cost of stationery will be ₹ 1,000 per month. S
(i) Manager-cum-accountant’s salary is ₹ 17,000 per month. S
(j) Petrol and oil will be ₹ 500 per 100 kilometers. R
(k) The bus will make 3 up and down trips carrying on an average 40
passengers on each trip.
(l) The bus will run on an average 25 days in a month.

Assuming 15% profit on takings, CALCULATE the bus fare to be charged from
each passenger.
SOLUTION:

CALCULATION OF TOTAL PASSENGER – KM p.a.

=𝟒𝟎𝒌𝒎 × 𝟑 𝒕𝒓𝒊𝒑𝒔 × 𝟐 𝒕𝒊𝒎𝒆𝒔 × 𝟐𝟓 𝒅𝒂𝒚𝒔 × 𝟏𝟐 𝒎𝒐𝒏𝒕𝒉𝒔 × 𝟒𝟎 𝒑𝒂𝒔𝒔𝒆𝒏𝒈𝒆𝒓

= 28,80,000 Passenger – km

TOTAL DISTANCE TRAVELLED:

= 𝟒𝟎 𝒌𝒎𝒔 × 𝟑𝒕𝒓𝒊𝒑𝒔 × 𝟐 𝒕𝒊𝒎𝒆𝒔 × 𝟐𝟓 𝒅𝒂𝒚𝒔 × 𝟏𝟐 𝒎𝒐𝒏𝒕𝒉𝒔 = 𝟕𝟐, 𝟎𝟎𝟎 𝒌𝒎𝒔

STATEMENT OF COST PER PASSENGER – KM

COST PER
SRN PARTICULARS COST PER ANNUM PASSENGER-KM
(28,80,000)
1. STANDING COSTS
Insurance (3% of ₹ 10 L) 30,000
Annual Tax 20,000
Garage Rent (20k × 12) 2,40,000
Depreciation (10L – 0)/2.5 yrs 4,00,000
Salary to Driver (30k p.m.) 3,60,000
Salary to Conductor
(25k p.m.) 3,00,000
Stationery (1,000 p.m.) 12,000
Manager-cum-
Accountant Salary
(₹ 17,000 p.m.) 2,04,000
15,66,000 0.544
2. RUNNING COST
Petrol & Oil 3,60,000
Commission to Driver 1,42,000
Commission to Conductor 1,42,000
6,44,000 0.224
3. MAINTENANCE COST
Repairs 2,04,000 0.071
TOTAL COST 24,14,000 0.839
(+) PROFIT @ 15% on 4,26,000 0.148
TAKING
TAKINGS 28,40,000 0.987

TOTAL TAKINGS = STANDING COST + RUNNING COST + MAINTENANCE

COST + PROFIT

X = 15,66,000 + (3,60,000 + 0.1X) + 2,04,000 + 0.15 X

X = 21,30,000 + 0.1X + 0.15X

X = ₹ 28,40,000
ILLUSTRATION 5

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 the school. The work-load 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 are as under:

Driver’s salary S ₹ 4,500 per month per driver

Cleaner’s salary S ₹ 3,500 per month per cleaner
(Salary payable for all 12 months)
Licence fee, taxes, etc. S ₹ 8,600 per bus per annum
Insurance S ₹ 10,000 per bus per annum
Repairs & maintenance M ₹ 35,000 per bus per annum
Purchase price of the bus Dep ₹ 15,00,000 each
Life of each bus 12 years S
Scrap value of buses at the end of life ₹ 3,00,000
Diesel cost R ₹ 45.00 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 and
fifty per cent of the students travelling in each trip are in this category.
Ignore interest. Since the charges are to be based on average cost you
are required to:

(i) PREPARE a statement showing the expenses of operating a single bus

and the fleet of five buses for a year.

(ii) WORK OUT the average cost per student per month in respect of –

(A) students coming from a distance of upto 4 km. from the school and

(B) students coming from a distance beyond 4 km. from the school.
SOLUTION:

STATEMENT OF EXPENSES OF OPERATING BUSES FOR A YEAR

SRN PARTICULARS COST PER BUS PER COST OF 5 BUSES

ANNUM PER ANNUM
I. STANDING COSTS
Driver’s Salary (₹ 4,500 × 12) 54,000 2,70,000
Cleaner’s Salary (₹ 3,500 × 12) 42,000 2,10,000
Licence Fee, Taxes etc. 8,600 43,000
Insurance 10,000 50,000
Depreciation (WN 3) 1,00,000 5,00,000
2,14,600 10,73,000
II. RUNNING COST
Diesel Cost (WN 4) 1,62,000 8,10,000
III. MAINTENANCE COST
Repair & Maintenance Cost 35,000 1,75,000
IV. TOTAL COST (I + II + II) 4,11,600 20,58,000
V. TOTAL COST PER MONTH (IV ÷12) 34,300 1,71,500
VI. TOTAL NO. OF STUDENT (WN2) 150 750
VII. HALF FARE COST PER STUDENT 228.67 228.67
(VI ÷ VII)
VIII. FULL FARE COST PER STUDENT 457.34 457.34
(VII × 2)
WORKING NOTES:

1. CALCULATION OF TOTAL KMS

TOTAL DISTANNCE = 𝟖 𝒕𝒓𝒊𝒑𝒔 × 𝟖 𝒌𝒎𝒔 × 𝟐𝟓 𝒅𝒂𝒚𝒔 𝒊𝒏 𝒂 𝒎𝒐𝒏𝒕𝒉 × 𝟗 𝒎𝒐𝒏𝒕𝒉𝒔
= 14,400 km per bus

2. CALCULATION OF EQUIVALENT NUMBER OF STUDENTS

Seating Capacity 50 students
Half Fare Students (50%) 25 students
Full Fare Students (Balance) 25 students

Full Fare Students equivalent to Half Fare Students 50 students

(25 Full Fare Students × 2 times fare of Half Fare Students)

Total No. of students equivalent to Half Fare

Full Fare 50 students
Half Fare 25 students
75 students

Total No. of students in 2 trips 150 students

3. CALCULATION OF DEPRECIATION

𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑪𝒐𝒔𝒕 − 𝑺𝒄𝒓𝒂𝒑 𝑽𝒂𝒍𝒖𝒆 𝟏𝟓, 𝟎𝟎, 𝟎𝟎𝟎 − 𝟑, 𝟎𝟎, 𝟎𝟎𝟎

𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = =
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝑼𝒔𝒆𝒇𝒖𝒍 𝑳𝒊𝒇𝒆 𝟏𝟐
= ₹ 1,00,000 per bus per annum

4. CALCULATION OF COST OF DIESEL

𝟏𝟒,𝟒𝟎𝟎
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑫𝒊𝒆𝒔𝒆𝒍 𝒑𝒆𝒓 𝒃𝒖𝒔 = ×₹ 45 = ₹ 1,62,000 per bus per annum
𝟒
ILLUSTRATION 6

GTC has a lorry of 6-ton carrying capacity. It operates lorry service from
city A to city B for a particular vendor. It charges ₹ 2,400 per ton from
city ‘A’ to city ‘B’ and ₹ 2,200 per ton for the return journey from city ‘B’
to city ‘A’. Goods are also delivered to an intermediate city ‘C’ but no extra
charges are billed for unloading goods in-between destination city and no
concession in rates is given for reduced load after unloading at
intermediate city. Distance between the city ‘A’ to ‘B’ is 300 km and
distance from city ‘A’ to ‘C’ is 140 km.

In the month of January, the truck made 12 journeys between city ‘A’
and city ‘B’. The details of journeys are as follows:

Outward journey No. of journeys Load (in ton)

‘A’ to ‘B’ 10 6
‘A’ to ‘C’ 2 6
‘C’ to ‘B’ 2 4

Return journey No. of journeys Load (in ton)

‘B’ to ‘A’ 5 8
‘B’ to ‘A’ 6 6
‘B’ to ‘C’ 1 6
‘C’ to ‘A’ 1 0

Annual fixed costs and maintenance charges are ₹ 6,00,000 and ₹

1,20,000 respectively. Running charges spent during the month of
January are ₹ 2,94,400 (includes ₹ 12,400 paid as penalty for
overloading).

You are required to:

(i) CALCULATE the cost as per

(a) Commercial ton-kilometre.

(b) Absolute ton-kilometre

(ii) CALCULATE Net Profit/ loss for the month of January

SOLUTION:

CALCULATION OF TOTAL COST OF RUNNING THE LORRY

PARTICULARS AMOUNT AMOUNT

(PER ANNUM) (PER MONTH)
I. STANDING COST
Fixed Costs 6,00,000 50,000
II. MAINTENANCE COST
Maintenance Charges 1,20,000 10,000
III. RUNNING COST
Running Charges (2,94,400 – 12,400*) 2,82,000
TOTAL MONTHLY COST 3,42,000

COST PER COMMERCIAL TON-KM ₹ 7.92

𝟑, 𝟒𝟐, 𝟎𝟎𝟎
( )
𝟒𝟑, 𝟐𝟎𝟎 𝒕𝒐𝒏 − 𝒌𝒎

COST PER ABSOLUTE TON-KM ₹ 7.65

𝟑, 𝟒𝟐, 𝟎𝟎𝟎
( )
𝟒𝟒, 𝟕𝟐𝟎 𝒕𝒐𝒏 − 𝒌𝒎

* Penalty is an Abnormal Loss and hence charged to Costing P&L A/c. The
same is not allocated on cost of running lorry.

CALCULATION OF PROFIT / (LOSS) FOR THE MONTH OF JANUARY

PARTICULARS AMOUNT (₹) AMOUNT (₹)
Hire Charges from A to B
(𝟏𝟐 𝑱𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝑹𝒔. 𝟐, 𝟒𝟎𝟎 𝒑𝒆𝒓 𝒕𝒐𝒏) 1,72,800
Hire Charges from B to A
(𝟓 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟖 𝒕𝒐𝒏𝒔 × 𝑹𝒔. 𝟐, 𝟐𝟎𝟎)
+ (𝟕 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝑹𝒔. 𝟐, 𝟐𝟎𝟎) 1,80,400 3,53,200
Less: Cost of Running the Lorry (3,42,000)
PROFIT 11,200
ILLUSTRATION 7

A company runs a holiday home. For this purpose, it has hired a building
at a rent of ₹ 10,000 per month along with 5% of total taking. It has three
types of suites for its customers, viz., single room, double rooms and
triple rooms.

Following information is given:

TYPE OF SUITE NUMBER OCCUPANCY PERCENTAGE

Single room 100 100%
Double rooms 50 80%
Triple rooms 30 60%

The rent of double rooms suite is to be fixed at 2.5 times of the single
room suite and that of triple rooms suite as twice of the double rooms
suite.

The other expenses for the year 2023-24 are as follows:

PARTICULARS AMOUNT
(₹)
Staff salaries S 14,25,000
Room attendants’ wages S 4,50,000
Lighting, heating and power R 2,15,000
Repairs and renovation M 1,23,500
Laundry charges R 80,500
Interior decoration S 74,000
Sundries S 1,53,000

Provide profit @ 20% on total taking and assume 360 days in a year.

You are required to CALCULATE the rent to be charged for each type of
suite.
SOLUTION:
STATEMENT OF COST
PARTICULARS AMOUNT (₹)
STANDING CHARGES
Staff Salary 14,25,000
Room Attendants Wages 4,50,000
Interior Decoration 74,000
Sundries 1,53,000
Rent – Fixed (10,000 × 12 𝑚𝑜𝑛𝑡ℎ𝑠) 1,20,000
RUNNING COSTS
Lighting, heating and power 2,15,000
Laundry charges 80,500
Rent (5% of Takings) 0.05𝑥
MAINTENANCE COST
Repairs and renovation 1,23,500
TOTAL COST 26,41,000 + 0.05𝒙
(+) PROFIT @ 20% on Takings 0.2𝒙
TAKINGS 𝒙

Let the Takings be ₹ 𝒙

Takings = Total Cost + Profit

𝒙 = 𝟐𝟔, 𝟒𝟏, 𝟎𝟎𝟎 + 𝟎. 𝟎𝟓𝒙 + 𝟎. 𝟐𝒙

𝒙 = 𝟑𝟓, 𝟐𝟏, 𝟑𝟑𝟑

Takings = ₹ 35,21,333

𝑹𝒔.𝟑𝟓,𝟐𝟏,𝟑𝟑𝟑
Rent to be charged to a Single Room = = ₹ 33.73
𝟏,𝟎𝟒,𝟒𝟎𝟎 𝑹𝒐𝒐𝒎−𝑫𝒂𝒚𝒔

Rent to be charged to a Double Room = 𝟑𝟑. 𝟕𝟑 × 𝟐. 𝟓 = ₹ 84.33

Rent to be charged to a Triple Room = = 𝟖𝟒. 𝟑𝟑 × 𝟐 = ₹ 168.66

WORKING NOTE:

1. CALCULATION OF TOTAL EQUIVALENT SINGLE ROOM UNITS

TYPE OF OCCUPANY EQ. SINGLE ROOM UNIT
ROOM (ROOM-DAYS) (ROOM-DAYS)
Single Room = 𝟏𝟎𝟎 𝑹𝒐𝒐𝒎𝒔 × 𝟏𝟎𝟎% = 36,000 Room-Days
× 𝟑𝟔𝟎 𝒅𝒂𝒚𝒔
= 36,000 Room-Days
Double Room = 𝟓𝟎 𝑹𝒐𝒐𝒎𝒔 × 𝟖𝟎% = 14,400 × 2.5 times
× 𝟑𝟔𝟎 𝒅𝒂𝒚𝒔 = 36,000 Room-Days
= 14,400 Room-days
Triple Room = 𝟑𝟎 𝑹𝒐𝒐𝒎𝒔 × 𝟔𝟎% = 6,480 × 𝟐 × 𝟐. 𝟓 times
× 𝟑𝟔𝟎 𝒅𝒂𝒚𝒔 = 32,400 Room-Days
= 6,480 Room-Days
= 1,04,400 Room-Days
WORKING NOTES:

1. CALCULATION OF COMMERCIAL TON-KM

Total Distance Travelled
= 300 kms × 12 Journey × 2 trips 7,200 kms
Average Weight: 6 ton
[(𝟏𝟎 × 𝟔) + (𝟐 × 𝟔) + (𝟐 × 𝟒) + (𝟓 × 𝟖) + (𝟔 × 𝟔) + (𝟏 × 𝟔)]
[ ]
𝟐𝟕
COMMERCIAL TON-KM 43,200 ton-km

2. CALCUALTION OF ABSOLUTE TON-KM

A to B (𝟏𝟎 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝟑𝟎𝟎 𝒌𝒎𝒔) 18,000 ton-km
A to C (𝟐 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝟏𝟒𝟎 𝒌𝒎𝒔) 1,680 ton-km
C to B (𝟐 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟒 𝒕𝒐𝒏𝒔 × 𝟏𝟔𝟎 𝒌𝒎𝒔) 1,280 ton-km
B to A (𝟓 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟖 𝒕𝒐𝒏𝒔 × 𝟑𝟎𝟎 𝒌𝒎𝒔) 12,000 ton-km
B to A (𝟔 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝟑𝟎𝟎 𝒌𝒎𝒔) 10,800 ton-km
B to C (𝟏 𝒋𝒐𝒖𝒓𝒏𝒆𝒚 × 𝟔 𝒕𝒐𝒏𝒔 × 𝟏𝟔𝟎 𝒌𝒎𝒔) 960 ton-km
ABSOLUTE TON-KM 44,720 ton-km
ILLUSTRATION 8

ABC Hospital runs a Critical Care Unit (CCU) in a hired building. CCU
consists of 35 beds and 5 more beds can be added, if required.

Rent per month - ₹ 75,000

Supervisors – 2 persons – ₹ 25,000 Per month – each

Nurses – 4 persons – ₹ 20,000 per month – each

Ward Boys – 4 persons – ₹ 5,000 per month – each

Doctors paid ₹ 2,50,000 per month – paid on the basis of number of

patients attended and the time spent by them

Other expenses for the year are as follows:

Repairs (Fixed) – ₹ 81,000

Food to Patients (Variable) – ₹ 8,80,000

Other services to patients (Variable) – ₹ 3,00,000

Laundry charges (Variable) – ₹ 6,00,000

Medicines (Variable) – ₹ 7,50,000

Other fixed expenses – ₹ 10,80,000

Administration expenses allocated – ₹ 10,00,000

It was estimated that for 150 days in a year 35 beds are occupied and for
80 days only 25 beds are occupied.

The hospital hired 750 beds at a charge of ₹ 100 per bed per day, to
accommodate the flow of patients. However, this does not exceed more
than 5 extra beds over and above the normal capacity of 35 beds on any
day.

You are required to –

(1) CALCULATE contribution per Patient day, if the hospital recovers on

an average ₹ 2,000 per day from each patient

(2) FIND OUT Breakeven point for the hospital

SOLUTION:

CALCULATION OF CONTRIBUTION PER DAY, PROFIT & BREAK EVEN

PARTICULARS AMOUNT (₹)

Income [₹ 2,000 × 8,000 Patient Days] 1,60,00,000
Variable Costs:
Doctor Cost [2,50,000 × 12 months] (30,00,000)
Food to Patients (8,80,000)
Other services to patients (3,00,000)
Laundry charges (6,00,000)
Medicines (7,50,000)
Extra Bed Cost [750 beds × ₹ 100 per day] (75,000) (56,05,000)
Contribution 1,03,95,000
Fixed Costs:
Rent [₹ 75,000 × 12 months] 9,00,000
Supervisors [₹ 25,000 × 12 months × 2] 6,00,000
Nurses [₹ 20,000 × 12 months × 4] 9,60,000
Ward Boys [₹ 5,000 × 12 months × 4] 2,40,000
Repairs 81,000
Other Fixed Expenses 10,80,000
Administration expenses 10,00,000 (48,61,000)
PROFIT 55,34,000

Contribution per Patient Day ₹ 1,299.38

𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝟏, 𝟎𝟑, 𝟗𝟓, 𝟎𝟎𝟎
=
𝑻𝒐𝒕𝒂𝒍 𝑷𝒂𝒕𝒊𝒆𝒏𝒕 − 𝑫𝒂𝒚𝒔 𝟖, 𝟎𝟎𝟎 𝑷𝒂𝒕𝒊𝒆𝒏𝒕 − 𝒅𝒂𝒚𝒔

Break Even Point 3,741 Patient-Days

𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 𝟒𝟖, 𝟔𝟏, 𝟎𝟎𝟎
=
𝑪𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝒑𝒆𝒓 𝒑𝒂𝒕𝒊𝒆𝒏𝒕 𝒅𝒂𝒚 𝟏, 𝟐𝟗𝟗. 𝟑𝟖
WORKING NOTES:

1. Calculation of Patient days

150 days × 𝟑𝟓 Beds = 5,250
80 days × 25 Beds = 2,000
Extra Beds = 750
8,000 Patient Days
ILLUSTRATION 9

Following are the data pertaining to Infotech Pvt. Ltd, for the year 2022-23:

Particulars Amount (₹)

Salary to Software Engineers (5 persons) 15,00,000
Salary to Project Leaders (2 persons) 9,00,000
Salary to Project Manager 6,00,000
Repairs & maintenance 3,00,000
Administration overheads 12,00,000
The company executes a Project XYZ, the details of the same as are as follows:

Project duration – 6 months

One Project Leader and three Software Engineers were involved for the entire duration
of the project, whereas Project Manager spends 2 months’ efforts, during the execution
of the project.

Travel expenses incurred for the project – ₹ 1,87,500

Two Laptops were purchased at a cost of ₹ 50,000 each, for use in the project and the
life of the same is estimated to be 2 years

PREPARE Project cost sheet considering overheads are absorbed on the basis
of salary.
SOLUTION:

PROJECT COST SHEET

PARTICULARS AMOUNT (₹)

Salary to Software Engineers
3 6
[15,00,000 × × ]
5 12 4,50,000
Salary to Project Leaders
1 6
[9,00,000 × × ]
2 12 2,25,000
Salary to Project Manager
2
[6,00,000 × ]
12 1,00,000
Total Salary 7,75,000
Add: Overheads (50% of Salary) 3,87,500
Add: Travel expenses 1,87,500
Add: Depreciation & Amortisation Expenses
6
[2 × 50,000 × 50% × 12] 25,000
TOTAL PROJECT COST 13,75,000

WORKING NOTES:

1. Calculation of Overheads Absorption Rate

PARTICULARS AMOUNT (₹)
Salary to Software Engineers (5 persons) 15,00,000
Salary to Project Leaders (2 persons) 9,00,000
Salary to Project Manager 6,00,000
TOTAL SALARY 30,00,000

Repairs & maintenance 3,00,000

Administration overheads 12,00,000
TOTAL OVERHEADS 15,00,000

𝑻𝒐𝒕𝒂𝒍 𝑶𝒗𝒆𝒓𝒉𝒆𝒂𝒅𝒔 𝟏𝟓, 𝟎𝟎, 𝟎𝟎𝟎

𝑶𝒗𝒆𝒓𝒉𝒆𝒂𝒅𝒔 𝑨𝒃𝒔𝒐𝒓𝒑𝒕𝒊𝒐𝒏 𝑹𝒂𝒕𝒆 = × 𝟏𝟎𝟎 = × 𝟏𝟎𝟎 = 𝟓𝟎%
𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒂𝒓𝒚 𝟑𝟎, 𝟎𝟎, 𝟎𝟎𝟎
ILLUSTRATION 10

BHG Toll Plaza Ltd built a 60 km. long highway and now operates a toll plaza to collect
tolls from passing vehicles using the highway. The company has estimated that a total of
12 crore vehicles (only single type of vehicle) will be using the highway during the 10
years toll collection tenure.

Toll Operating and Maintenance cost for the month of April are as follows:

(i) Salary to –

Collection Personnel (3 Shifts and 4 persons ₹ 550 per day per person
per shift)
Supervisor (2 Shifts and 1 person per shift) ₹ 750 per day per person
Security Personnel (3 Shifts and 6 persons per ₹ 450 per day per person
shift)
Toll Booth Manager (2 Shifts and 1 person per ₹ 900 per day per person
shift)
(ii) Electricity – ₹ 8,00,000

(iii) Telephone – ₹ 1,40,000

(iv) Maintenance cost – ₹ 30 Lakh

Monthly depreciation and amortisation expenses will be ₹ 1.50 crore. Further, the
company needs 25% profit over total cost to cover interest and other costs.

Required:

(i) CALCULATE cost per kilometre per month.

(ii) CALCULATE the toll rate per vehicle.

SOLUTION:

COST SHEET FOR THE MONTH OF APRIL

PARTICULARS AMOUNT (₹)

Salary to Collection Personnel
[3 𝑠ℎ𝑖𝑓𝑡𝑠 × 4 𝑝𝑒𝑟𝑠𝑜𝑛 𝑝𝑒𝑟 𝑠ℎ𝑖𝑓𝑡 × 30 𝑑𝑎𝑦𝑠 × ₹ 550 𝑝𝑒𝑟 𝑑𝑎𝑦] 1,98,000
Salary to Supervisor
[2 𝑠ℎ𝑖𝑓𝑡𝑠 × 1 𝑝𝑒𝑟𝑠𝑜𝑛 𝑝𝑒𝑟 𝑠ℎ𝑖𝑓𝑡 × 30 𝑑𝑎𝑦𝑠 × ₹ 750 per day] 45,000
Salary to Security Personnel
[3 𝑠ℎ𝑖𝑓𝑡𝑠 × 6 𝑝𝑒𝑟𝑠𝑜𝑛 𝑝𝑒𝑟 𝑠ℎ𝑖𝑓𝑡 × 30 𝑑𝑎𝑦𝑠 × ₹ 450 per day] 2,43,000
Salary to Toll Booth Manager
[2 𝑠ℎ𝑖𝑓𝑡𝑠 × 1 𝑝𝑒𝑟𝑠𝑜𝑛 𝑝𝑒𝑟 𝑠ℎ𝑖𝑓𝑡 × 30 𝑑𝑎𝑦𝑠 × ₹ 900 per day] 54,000
Electricity 8,00,000
Telephone 1,40,000
Maintenance Cost 30,00,000
Depreciation and Amortisation Expenses 1,50,00,000
TOTAL COST 1,94,80,000

₹ 𝟏, 𝟗𝟒, 𝟖𝟎, 𝟎𝟎𝟎

𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝒌𝒎 𝒑𝒆𝒓 𝒎𝒐𝒏𝒕𝒉 = = ₹ 3,24,666.67
𝟔𝟎 𝒌𝒎𝒔

𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 + 𝑷𝒓𝒐𝒇𝒊𝒕 @𝟐𝟓% 𝟏, 𝟗𝟒, 𝟖𝟎, 𝟎𝟎𝟎 + 𝟒𝟖, 𝟕𝟎, 𝟎𝟎𝟎
𝑻𝒐𝒍𝒍 𝑹𝒂𝒕𝒆 𝒑𝒆𝒓 𝒗𝒆𝒉𝒊𝒄𝒍𝒆 = =
𝑽𝒆𝒉𝒊𝒄𝒍𝒆𝒔 𝒑𝒆𝒓 𝒎𝒐𝒏𝒕𝒉 𝟏𝟎, 𝟎𝟎, 𝟎𝟎𝟎
𝑻𝒐𝒍𝒍 𝑹𝒂𝒕𝒆 𝒑𝒆𝒓 𝒗𝒆𝒉𝒊𝒄𝒍𝒆 = ₹ 24.35

WORKING NOTES:

1. Calculation of Vehicles per month

𝟏𝟐, 𝟎𝟎, 𝟎𝟎, 𝟎𝟎𝟎 𝑽𝒆𝒉𝒊𝒄𝒍𝒆𝒔 𝟏
× 𝒎𝒐𝒏𝒕𝒉 = 𝟏𝟎, 𝟎𝟎, 𝟎𝟎𝟎 𝒗𝒆𝒉𝒊𝒄𝒍𝒆𝒔 𝒑𝒆𝒓 𝒎𝒐𝒏𝒕𝒉
𝟏𝟎 𝒚𝒆𝒂𝒓𝒔 𝟏𝟐
ILLUSTRATION 11

AD Higher Secondary School (AHSS) offers courses for 11th & 12th standard in three
streams i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along
with primary and secondary classes, but for accounting purpose it treats higher
secondary as a separate responsibility centre. The Managing committee of the school
wants to revise its fee structure for higher secondary students. The accountant of the
school has provided the following details for a year:

PARTICULARS AMOUNT (₹)

Teachers’ salary (25 teachers × ₹ 35,000 × 12 months) 1,05,00,000
Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants × ₹ 15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × ₹ 10,000 × 12 months) 4,80,000
Salary to other staffs 4,80,000
Examinations expenditure 10,80,000
Office & Administration cost 15,20,000
Annual day expenses 4,50,000
Sports expenses 1,20,000
Other information:

(i)
PARTICULARS Standard 11 & 12 Primary &
Arts Commerce Science Secondary

No. of students 120 360 180 840

Lab classes in a year 0 0 144 156
No. of examinations in a year 2 2 2 2
Time spent at library by 180 120 hours 240 60 hours
students per year hours hours
Time spent by principal for 208 312 hours 480 1,400 hours
administration hours hours
Teachers for 11 & 12 standard 4 5 6 10

(ii) One teacher who teaches economics for Arts stream students also teaches
commerce stream students. The teacher takes 1,040 classes in a year, it
includes 208 classes for commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students
also teaches business mathematics to commerce stream students. She takes
1,100 classes a year, it includes 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate
their 15% time for higher secondary section.
(v) All school students irrespective of section and age participates in annual
functions and sports activities.

Required:

(a) CALCULATE cost per student per annum for all three streams.
(b) If the management decides to take uniform fee of ₹ 1,000 per month
from all higher secondary students, CALCULATE stream wise
profitability.
(c) If management decides to take 10% profit on cost, COMPUTE fee to be
charged from the students of all three streams respectively.
 SOLUTION:

(a) COMPUTATION OF COST PER STUDENT PER ANNUM OF EACH STREAM

PARTICULARS ARTS COMMERCE SCIENCE TOTAL

Teachers’ Salary 16,80,000 21,00,000 25,20,000 63,00,000
[₹ 35,000 × 12 months × No. of Teachers in
each stream]
Reapportionment of Economics Teacher’s (84,000) 84,000 - -
Salary
208
[35,000 × 12 × ]
1040
Reapportionment of Mathematics Teacher’s - 61,091 (61,091) -
Salary
160
[35,000 × 12 × ]
1100
Principal’s Salary 1,24,800 1,87,200 2,88,000 6,00,000
𝑇𝑖𝑚𝑒 𝑠𝑝𝑒𝑛𝑡 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[14,40,000 ×
2,400 ℎ𝑟𝑠
Lab Attendants’ Salary - - 1,72,800 1,72,800
144
[3,60,000 × ]
300
Salary to Library Staff 43,200 28,800 57,600 1,29,600
[1,44,000
𝑇𝑖𝑚𝑒 𝑠𝑝𝑒𝑛𝑡 𝑏𝑦 𝑠𝑡𝑢𝑑𝑒𝑛𝑡 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
× ]
600 ℎ𝑟𝑠
Salary to Peons
- Fully dedicated
𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚 21,818 65,455 32,727 1,20,000
[1 × 10,000 × 12 × ]
𝑇𝑜𝑡𝑎𝑙 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 (𝐻𝑆)
- Others
[3 × 10,000 × 12 × 15%
9,818 29,455 14,727 54,000
𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
× ]
𝑇𝑜𝑡𝑎𝑙 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 (𝐻𝑆)
Salary to Other Staff 38,400 1,15,200 57,600 2,11,200
𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[4,80,000 × ]
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠
Examination Expenditure 86,400 2,59,200 1,29,600 4,75,200
𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[10,80,000 × ]
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠
Office and Administration Expenses 1,21,600 3,64,800 1,82,400 6,68,800
𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[15,20,000 × ]
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠
Annual Day Expenses 36,000 1,08,000 54,000 1,98,000
𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[4,50,000 × ]
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠
Sports Expenses 9,600 28,800 14,400 52,800
𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠 𝑖𝑛 𝑒𝑎𝑐ℎ 𝑠𝑡𝑟𝑒𝑎𝑚
[1,20,000 × ]
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜. 𝑜𝑓 𝑆𝑡𝑢𝑑𝑒𝑛𝑡𝑠
TOTAL COST PER ANNUM 20,87,636 34,32,001 34,62,763 89,82,400
(÷) No. of Students 120 360 180 660
COST PER STUDENT PER ANNUM 17,397 9,533 19,238 13,610

(b) COMPUTATION OF PROFITABILITY OF EACH STREAM

PARTICULARS ARTS COMMERCE SCIENCE
Cost per student per annum 17,397 9,533 19,238
Fee per student per annum 12,000 12,000 12,000
Profit / (Loss) (5,397) 2,467 (7,238)

(c) COMPUTATION OF FEE PER STUDENT

PARTICULARS ARTS COMMERCE SCIENCE
Cost per student per annum 17,397 9,533 19,238
(+) Profit @ 10% 1,740 953 1,924
FEE PER STUDENT PER ANNUM 19,137 10,486 21,162
FEE PER STUDENT PER MONTH 1,595 874 1,764
ILLUSTRATION 12

SOLUTION:
CALCULATION OF COST PER TONN-KM & PROFIT FOR THE MONTH OF JULY 2020
PARTICULARS AMOUNT (₹)
Annual Fixed Charges [1,92,000 ÷ 12] 16,000
Annual Maintenance Charges [9,60,000 ÷ 12] 80,000
Monthly Operating Charges 12,020
Total Cost 1,08,020
Total Tonne-km 22,110 Tonne-km
Cost per Tonne-km ₹ 4.89

Revenue from Outward Trips [₹ 600 × 5 Tonnes × 10 trips] 30,000

Revenue from Returning Trips
[₹ 560 × 8 Tonnes × 5 trips]
[₹ 560 × 5 Tonnes × 5 trips] 36,400
TOTAL REVENUE 66,400
Total Cost 1,08,020
Loss 41,620

WORKING NOTE:
1. CALCULATION OF TOTAL TONNE-KM
PARTICULARS Calcutta Burdwan Durgapur
Distance
C to B 120 kms
C to D 210 kms
B to D 90 kms

Outwards Trips:
7 trips × 5 Tonne × 210 kms = 7,350 Tonne-km
2 trips × 5 Tonne × 120 kms = 1,200 Tonne-km
2 trips × 2 Tonne × 90 kms = 360 Tonne-km
1 trip × 5 Tonne × 120 kms = 600 Tonne-km
= 9,510 Tonne-km
Returning Trips:
1 trip × 0 Tonnes × 120 kms = NIL
5 trips × 8 Tonnes × 210 kms = 8,400 Tonne-km
4 trips × 5 tonnes × 210 kms = 4,200 Tonne-km
= 12,600 Tonne-km

Total Tonne-km = 9,510 + 12,600 = 22,110 Tonne-km