UNIT -1 INTRODUCTION TO COSTING METHODS

INTRODUCTION:

The methods or types of costing refer to the methods used in the ascertainment of costs of
products and services. Several methods have been designed to suit the needs of different
industries. The methods of costing to be used in a particular concern depends upon the type
and nature of manufacturing activity. Basically , there are two methods of costing

1. Job costing
2. Process costing

All other methods are variants of either job costing or process costing .the various
methods of costing are as follows.

1. JOB COSTING :Job Costing is that form of specific order costing which applies
where the work is undertaken as an identifiable unit such as:
 Manufacture of products to customer’s specific requirements.
 Fabrication of certain materials where raw materials are supplied by the customers.
 Repairs are done within a factory or at customer’s premises
 Internal capital expenditure jobs etc.

2. CONTRACT COSTING:

Contract costing is used as a costing method by undertakings involved in specific

contracts. The undertakings may have many contracts on hand simultaneously. Each contract
is treated separately and the cost is collected separately for each contract.

The nature of the construction work is dependent on the specification given by the contractee
(contractee is the person for whom the construction work is undertaken). The contractee may
be an individual or a partnership firm or a joint stock company. A small contractor takes up
the construction of residential houses. A big contractor will have the capacity to take up big
projects. The construction may involve period ranging from few days to few years.

3.PROCESS COSTING: Process Costing is that form of operating costing which is

used to ascertain the cost of the product at each process or stage of manufacture where
processes are carried on having one or more of the following features:-

1. Production is done having a continuous flow of identical products except where

plant and machinery is shut down for repairs etc.
2. Product is homogeneous. The units are identical and standardized.
3. The sequence of operation for processing the product is specific & pre-
determined.

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 4. Finished product of one process is the raw material for the next process until
completion.
5. It is not possible to trace the identity of any particular lot of input materials.

4. BATCH COSTING: Batch costing is a form of specific order costing. Job costing refers
to costing of jobs that are executed against specific orders whereas in batch costing items are
manufactured for stock. A finished product may require different components for assembly
and maybe manufactured in economical batch lots. When orders are received from different
customers, there are common products among orders, then production orders may be issued
for batches, consisting of a predetermined quantity of each type of product. Batch costing
method is adopted in such cases to calculate the cost of each such batch. Cost per unit is
ascertained by dividing the total cost of a batch by number of items produced in that batch.

5. OPERATING COSTING: This costing method is used to ascertain the cost of rendering
a unit of service. Operating costing is used by undertakings which do not manufacture but
render service. The following are the examples of undertakings using operating costing
method of ascertainment of cost.

(a) Transport Service- Roadways, Railways, Shipping, and Airways.

(b) Public Utility Service- Gas, Electricity, Water supply, hospitals.
(c) Catering Establishment- Hotels, Canteen.

Operating costing is similar to unit costing method. Cost of rendering a unit of service
can be ascertained by the preparation of a Cost Sheet.

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 UNIT -2 JOB AND BATCH COSTING

(A)JOB COSTING

Job Costing is that form of specific order costing which applieswhere the work is
undertaken as an identifiable unit such as:
 Manufacture of products to customer’s specific requirements.
 Fabrication of certain materials where raw materials are supplied by the customers.
 Repairs are done within a factory or at customer’s premises
 Internal capital expenditure jobs etc.

FEATURES OF JOB ORDER COSTING:

Under this method, cost are collected and accumulated for each job, workorderor project
separately. Each job can be separately identified and hence it becomes essential to analyse
the cost according to each job.

The industries, where this method of costing is applied, must possess these features ie:

 Production is generally against customers order but not for stock

 Each job has its own characteristic and need special treatment
 There is no uniformity in the flow of production from department to department
 Each job is treated as a cost unit under this method of costing
 Each job is distinctively identified by a production order throughout the production
stage
 The cost of production of every job is ascertained after the completion of the job
 The work in progress differs from period to period according to the number of jobs in
hand

ADVANTAGES OF JOB ORDER COST

Following are the advantages of job order cost accounting:

 It provides a detailed analysis of cost of materials , wages and overheads classified by

functions, departments and nature of expenses which enables management to
determine the operating efficiency of the different factors of production
 It records cost more accurately and facilitates cost control by comparing actuals with
estimates
 It enables the management to ascertain which of the jobs are more profitable than the
others, which are less profitable and which are incurring losses
 It provides a basic for estimating the cost of similar jobs taken up in future and thus
helps in future production planning
 The detailed cost records of the past years can be used for statistical purposes in the
determination of the trends of cost of different types of jobs and their relative
efficiencies
 It is useful in quoting cost plus contract

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 DISADVANTAGES OF ORDER COSTING

Following are the disadvantages of job cost accounting:

 It involves great deal of clerical work in recording daily the cost of material issued ,
wages expanded and overheads chargeable to each job or work order which adds to
the cost of cost accounting
 The scope of committing mistakes are enough as the cost of one job may be wrongly
posted to the cost of other job
 Cost comparison among different job becomes difficult especially when drastic
charges takes place
 Job costing is a historical costing which ascertains the cost of a job or product after it
has been manufactured. It does not facilitate control of cost unless it is used with
standard or estimating costing

PROCEDURE OF JOB ORDER COST SYSTEM

The procedure of job order cost system may be summarised as follows

 RECEIVING AN ENQUIRY:
The customer will usually enquire about the price, quality to be maintained, the duration
with in which the order is to be executed and other specification of the job before placing
an order

 ESTIMATION OF THE PRICE OF JOB:

The cost accountant estimates the cost of the job keeping in mind the specification of the
customer. While preparing job in the previous year and possible changes in the various
estimates of cost are taken into consideration. The prospective customer is informed with
the estimate of the job.

 RECEIVING OF ORDER:
If the customer is satisfied with the quotation price and other term of execution, he
will then place the order.

 PRODUCTION ORDER:
If the job is accepted, a production order is made by the planning department. It is in
the form of consultations issued to the foreman to proceed with the manufacture of
product. It is prepared with sufficient copies so that copy of the same may be
given to all the departmental managers or for man who are required to take any part in
the production.

 RECORDING OF COST:
The cost are collected and recorded for each job under separate production order
number. Generally, job cost sheet is maintained for each job. This is a document to
record direct material, direct wades and overheads applicable to respective jobs.

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  COMPLETION OF JOB:
On completion of a job, a completion report is sent to costing department. The
expenditure under each element of cost is totalled and the total job cost is ascertained.
The actual cost is compared with the estimated cost so as to reveal efficiency in
operation.

 PROFIT OR LOSS ON JOB:

It is determined by comparing the actual expenditure or cost with the price obtained.

PROBLEMS
Q -1 Following particulars relate to job no 323
Materials used – Rs500
Direct Wages – x – 10 hrs. @Rs2.5perhour
Y – 8 hrs. @Rs3per hour
z- 5 hrs. @Rs4perhour
Variable Overheads:
X-7000 labour hours – Rs7000
Y – 3000 labour hours – Rs6000
Z- 1000 labour hours – Rs4000
Fixed overheads estimated at Rs30000 for 7500 normal working hours.
You are required to calculate the cost of job no 323 and calculate the price to give the
profit of 33 1/3%of selling price.

JOB SHEET NO.323

Particulars Amount (Rs) Amount (Rs)

Materials 500
Wages
X(10hrsxRS2.50) 25
Y(8hrsxRs3) 24
Z(5hrsxRs4) 20 69
PRIMECOST 569
Add: Overheads
X(10xRs1) 10
Y(8xRs2) 16
Z(5xRs4) 20 46
615
Add: Fixed Overhead
(For 23hrsxRs4) 92
COST OF PRODUCTION 707
Add:331/3% on selling price 354
SALES 1061

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WORKING NOTE:

Variable Overheads

X= Rs 7000/7000labour hrs=Rs1 per hour

Y=Rs6000/3000 labour hrs=Rs 2 per hour

Z=Rs4000/1000 labour hrs= Rs4 per hour

FIXED OVERHEAD

Rs 30000/7500= 4 per hours

C+P=S

66.666+ 33.33=100

707

[707x100/66.6666]=1060.5- Sales

[B] BATCH COSTING

Batch costing is a form of specific order costing. Job costing refers to costing of jobs that are
executed against specific orders whereas in batch costing items are manufactured for stock. A
finished product may require different components for assembly and maybe manufactured in
economical batch lots. When orders are received from different customers, there are common
products among orders, then production orders may be issued for batches, consisting of a
predetermined quantity of each type of product. Batch costing method is adopted in such
cases to calculate the cost of each such batch. Cost per unit is ascertained by dividing the total
cost of a batch by number of items produced in that batch.

In order to do that a batch cost sheet. The preparation of batch cost sheet is similar to that of
job cost sheet.

Q Batch No – A- 120 incurred the following costs:

Direct Materials –Rs10000

Department

A-800 labour hours@ Rs5per hour

B-1400 labour hours@Rs6per hour

Factory overheads are absorbed in labour hours basis and the rate are Rs7per hour for
department A-and Rs4per hour for department B. the firm uses a cost plus system for setting
price and expects a 25% gross profit. Administratine overheads are absorbed at 10% of
selling price. Assuming that 1000 units were produced in batch A-120

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Calculate the selling price per unit.

COST SHEETOF BATCH NO - 120

Particulars Amount (Rs) Amount(Rs)

Materials 10000
Labour:
Department –A- (800xRs5) 4000
Department-A- (1400xRs6) 8400 12400
Factory Overheads
Department – A-(800xRs7) 5600
Department – B-(1400xRs4) 5600 11200
FACTORY COST 33600
Administration Overheads:
[10% of selling price Rs 44800] 4480
COST OF PRODUCTION 38080
Profit(15% of selling price) 6720
SELLING PRICE 44800

Units produced in batch A -120- 100 Units

Selling price per unit = Rs 44800/1000=Rs 44.80

Calculation of selling price:

Selling price (33600x 100/75)= 44800

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 UNIT -3 PROCESS COSTING, JOINT AND BY- PRODUCTS

Process Costing is that form of operating costing which is used to ascertain

the cost of the product at each process or stage of manufacture where processes are
carried on having one or more of the following features:-
6. Production is done having a continuous flow of identical products except where
plant and machinery is shut down for repairs etc.
7. Product is homogeneous. The units are identical and standardized.
8. The sequence of operation for processing the product is specific & pre-
determined.
9. Finished product of one process is the raw material for the next process until
completion.
10. It is not possible to trace the identity of any particular lot of input materials.

Advantages of process costing

1. It is possible to determine process costs periodically at short intervals. Unit cost

can be computed weekly or even daily if overhead rates are used on pre-
determined basis.
2. It is simple and less expensive to find out the process costs.
3. It is possible to have managerial control by evaluating the performance of each
process.
4. It is easy to allocate the expenses to processes in order to have accurate costs.
5. It is easy to quote the prices with standardization of process. Standard costing can
be established easily in process type of manufacture.

Disadvantages of process costing

1. Costs obtained at the end of the accounting period are only of historical value and
are not very useful for effective control.

2. Work-in-progress is required to be ascertained at the end of the accounting period

for calculating the cost of continuous process.

3. Where different products arise in the same process and common costs are prorated
to various cost units. Such individual products costs may be taken as only
approximation and hence not reliable but may be taken as the best.

4. There is a wide scope of errors while calculating average costs. An error on

average cost will be carried through all processes to the valuation of work-in-
progress and finished goods.

5. The computation of average cost is more difficult in those cases where more than
one type of product is manufactured and a division of the cost elements are
necessary

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Process Loss-

In many processes, some loss is inevitable. It is essential that accurate records are maintained
to enable control of the items to be affected. The cost department must be kept well
informedthrough the medium of scrap tickets, material credit notes and loss reports etc. It
should be pointed to the supervisors or foreman that any loss as scrap should be measured
and recorded, otherwise production costs will increase. The loss may arise on account of –

(a) Evaporation, residuals, ash.

(b) Unavoidable handling, breakage spoilage losses.
(c) Withdrawal for testing and inspection. It may be normal or abnormal.

Normal process losss-

It is the loss which is unavoidable on account of inherent nature of production process. Such
loss can be estimated in advance on the basis of past experience or data. The normal loss is
recorded only in items of quantity and the cost per unit of usable production is increased
accordingly.

Abnormal process loss-

Any loss caused by unexpected or abnormal conditions such as plant break down, sub-
standard materials, accident etc. or loss in excess of the margin anticipated for normal
process loss should be regarded as abnormal process loss. The units of abnormal loss are
calculated as under –

Abnormal loss= Actual loss – Normal loss

Loss on account of abnormal wastage is borne by production, but by profit & loss a/c. if
abnormal wastage realizes some value, the realizable value is deducted from the cost of
abnormal wastage and only the difference is charged to costing P&L A/c.

Abnormal gain-

Normal wastage is only an estimated one. The actual wastage may be more than
the normal wastage or it can be less also, where the actual wastage is more than the
expected normal wastage, it is called abnormal wastage. On the other hand, if the actual
wastage is less than expected it is called abnormal gain.

JOINT PRODUCTS

When two or more products of equal importance and value are produced
simultaneously in a process, such products are called join products. For example, where
crude petroleum is the main product, fuel oil, kerosene, are join products.

Join products are those –

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 1. which are produced in the same process with the same material.
2. which are separated in the course of the same process.
3. which are comparatively of the same importance and value.
4. which require further processing to finish them into useful and valuable products.

Join products and co-products

1. Join products are like twins emerging from the same process. Co-products do not
emerge from the same material and process.
2. Join products are produced simultaneously in automobile industry motor cars,
jeeps, trucks, scooters etc. are co-products. It depends on the choice of the
manufacturer whether to produce more of cars or more of jeeps.

BY-PRODUCTS

By-products are defined as the “products recovered from materials discovered in a main
process or from the production of some major product, where material value is to be
considered at the time of severance from the main product.”

The following are the characteristics of By-product –

1. They are manufactured along with the main product.

2. They are produced from discarded materials or scrap of the main products.
3. They have less importance and value compared to the main products.
4. They have some saleable value.

In case of dairy industry, butter and cheese are the main products. Butter milk is the
by-product.

EQUIVALENT PRODUCTION (VALUATION OF WORK-IN -PROGRESS)-

At the end of the accounting period work-in-progress or unfinished units may arise. The
valuation of such work-in-progress is complicated. This is because as on the data of valuation
the product may have reached different stages of completion as regards to different elements
of cost. For example- 1000 units introduced into a process are complete

Materials=60%, labour=40%, overhead=100%

Solution-

Equivalent production is-

Material= 1000 units * 60% = 600units

Labour= 1000 units * 40% = 400units

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Overhead= 1000 units * 100% = 1000units

2000units

Equivalent production represents the production of a process in terms of completed

units. Partly completed units at the end of an accounting period are converted into equivalent
completed units.

Equivalent production= No. of units at work-in-progress * degree of completion in

percentage

Treatment of opening or closing work-in-progress –

1. Find out the percent of work needed to complete unfinished units(express this in
units).
2. Add the no. of units completed during the period.
3. Add percentage of work done on closing stock.

Problems:1

A particular process recorded the following information for the month of

January .the production recorded the names of units completed and the closing W.I.P
(there was no w.i.p during the period )

4500 units were issued at a cost of rs 31500. An amount of rs 18000 and 13500 were
spent on labour and overhead respectively. At the end of the month 3000 units were
completed and transffered to the next process.

The closing work in progress accrued for 1500 units which recorded the following
expenses:

100% on material

60% on labour

40% on over head

Find out the cost of units completed and the cost of closing wip and the total cost of
equipment production

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 Statement showing equivalent production

Items units Equivalent production

material labour overhead
quantity % quantity % quantity %

Completed 3000 3000 100% 3000 100% 3000 100%

units

Closing
WIP 1500 1500 100% 900 60% 600 40%

Calculation of cost per equivalent

Materials - 31500/4500 = 7.0 rs

Labour - 18000/3900 = 4.61 rs

Overhead - 13500/3600 = 3.75rs

15.36

Calculation of total cost

Total completed units – 3000*15.36=46080

Closing W.I.P

Material – 1500*7.0 = 10500

Labour – 900*4.61 = 4149

Overhead – 600*3.75 = 2250

62979

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 Problem 2 :

A product passes through 3 process namely A , B , C . the normal wastage

of each process is A-3% , B-6% , C-10%. The percentage of normal wastage in each
process is computed on the basis of the number of units entering the process concerned
.the wastage of process A is sold at 25 paise per/unit, that of process B is sold at 50 paise
per/unit and that of process C is sold at 1rs per/unit. 15000 units of crude material were
introduced in process A at 1rs/unit.

The other expenses are : A B C

Material consumed 1500 2250 750

Direct labour 7500 12000 9750

Manufacturing expenses 1575 1425 3015

The output of each process is as follows:

A – 14250

B – 13650

C – 12012. Prepare process cost account.

PROCESS A a/c

Particulars Units Amount Particulars Units Amount

To input units 15000 15000 By normal loss 450 112.5
To materials 1500 By abnormal
To D.labor 7500 loss 300 525
To man. exp 1575 By transfer to
process II 14250 249375

15000 25575 15000 25575

Input - 15000

Normal loss - 450

Expected output - 14550

Actual output - 14250

Abnormal loss - -300

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Cost per unit = 25575-112.5/14550 =1.75

PROCESS B A/C

Particulars Units Amount Particulars Units Amount

To transfer By normal 855 @ 0.5 427.5
from process loss
A 14250 24937.5 By transfer to
To materials 2250 process III 13650 40950
To D.labour 12000
To man .exp 1425
To Ab.Gain 255 765

14505 41377.5 14505 41377.5

Input -14250

Normal loss -855

Expected - 13395

Actual – 13650

Abnormal gain – 255

Cost per unit – 41377.5-427.5/13395 = 3.05

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 Process C A/ C

Particulars Units Amount Particulars Units Amount

To transfer By normal 1365 @ 1 1365
from loss
process B 13650 40950 By ab.loss 273 @4.32 1180
To 750
materials 9750 By transfer
To D.labor 3015 to finished
To man goods 12012 @ 51920
.exp 4.32

13650 54465 13650 54465

Input -13650

Normal loss -1365

Expected - 12285

Actual – 12012

Abnormal gain – 273

Cost per unit – 54465-1365/12285 = 4.32

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 ABNORMAL GAIN A/C

Particulars Units Amount Particulars Units Amount

To normal By process B 255 765
loss 255 127.5
To profit
&loss 637.5

255 765 255 765

ABNORMAL LOSS A/C

Particulars Units Amount Particulars Units Amount

To process A 300 525 By sale of
To process C 273 1180 scrap A 300 75
B 273 273

By P/L a/c 1357

573 1705 573 1705

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UNIT -4 CONTRACT COSTING

Contract costing is used as a costing method by undertakings involved in specific

contracts. The undertakings may have many contracts on hand simultaneously. Each contract
is treated separately and the cost is collected separately for each contract.

The nature of the construction work is dependent on the specification given by the contractee
(contractee is the person for whom the construction work is undertaken). The contractee may
be an individual or a partnership firm or a joint stockcompany. A small contractor takes up
the construction of residential houses. A big contractor will have the capacity to take up big
projects. The construction may involve period ranging from few days to few years.

PROFORMA OF CONTRACT A/C

Particulars Amt Particulars Amt

To material purchased xxx By material returned to stores xxx

To material from stores xxx By plant returned to stores xxx
To labour xxx By material at cost xxx
To plant xxx By plant at cost xxx
To direct & indirect expenses xxx By material sold xxx
To sub contract cost xxx By plant sold xxx
To wages o/s xxx By plant destroyed xxx
To P/L A/c xxx By material destroyed xxx
(profit on sale of plant or materials)
By P/L A/c xxx
To P/L A/c xxx (loss on sale of material or plant)
(the entire credit balance of contract
A/c in case of completed contract is By contract A/c xxx
transferred to P/L A/c) OR (in case (if work is completed)
of incomplete contract only a
specified portion of the profit is
transferred to P/L A/c & balance is
kept in reserve)

xxxx xxxx

PROFITS ON INCOMPLETE CONTRACT

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The contract A/c is prepared in order to ascertain the cost incurred on the contract and the
profit made. If the contract is complete, whole of the profit is transferred to P/L A/c. On the
other hand, if the contract is incomplete, only a portion of the profit is transferred to P/L A/c.
The remaining profit is kept as a reserve to meet contingencies.

Extent of construction Calculation of the amount of profit to be

transferred to P/L A/c.

Less than 25% NIL(complete amount to be kept in reserve).

25% but less than 50% Estimated profit * 1/3 * Cash received/ Work
certified

50% but less than 90% Estimated profit * 2/3 * cash received/work
certified

Above 90% but less than 100% Estimated profit * work certified/contract
price

PROBLEMS

1. XY company ltd contractors began their business on 1.1.93. During the year the
company was engaged on only one contract. The contract was Rs.500000 of the plant
and materials charged to the contract, the plant worth Rs.5000 & materials worth
Rs.4000 were lost in an accident. On 31st December plant which cost Rs.5000 each
returned to stores. The cost of work done but uncertified was Rs.2000 and the
materials costing Rs.4000 were in hand on site. Charge 10% depreciation on the plant
& complete the contract A/c and Balance sheet from the trial balance on 31.12.93 –

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 Particulars Debit Credit

Share capital 120000

Creditors 10000
Cash received on contract(80% of work certified) 200000
Land & building 43000
Bank balance 25000

Charge to contract –
Materials 90000
Plant 25000
Wages 140000
Expenses 70000

330,000 330,000

Contract A/C

Particulars Amount Particulars Amount

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 To materials 90000 P/L A/c –
To plant 25000 By material lost 4000
To wages 140000 By plant lost 5000
To expenses 7000 By plant returned to shares 5000

To bal. c/d 21000 Work-in-progress –

Work certified 250000
Work uncertified 2000

By material on hand 4000

By plant 25000
(-)plant returned (-) 5000
(-)plant lost (-)5000
15000
(-)dep 10% (-) 2000 13000

283,000 283,000

To P/L A/c 11200 By bal. b/d 21000

To profit kept in reserve 9800

21,000 21,000

Working note –

Percentage of work completion.

Work is 80% complete.

= Estimated profit * 2 * cash received

3 work certified

= 21000 * 2 * 200000
3 250000

= 11,200

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 BALANCE SHEET
Liabilities Amount Assets Amount

Share capital 120000 Land & building 43000

Creditors 10000 Bank balance 25000

P/L A/c 11200 Work-in-progress –

(-)plant & materials Work certified 250000
Lost (-)9000 2200 Work uncertified 2000
252000
(-)cash received (-)200000
52000
(-)reserves (-) 9800 42200

Plant 25000
(-)plant lost (-) 5000
20000
(-)dep 10% (-) 2000 18000

Material in hand 4000

1,32,200 1,32,200

UNIT 5OPERATING COSTING

This costing method is used to ascertain the cost of rendering a unit of service. Operating
costing is used by undertakings which do not manufacture but render service. The following
are the examples of undertakings using operating costing method of ascertainment of cost.

(d) Transport Service- Roadways, Railways, Shipping, and Airways.

(e) Public Utility Service- Gas, Electricity, Water supply, hospitals.
(f) Catering Establishment- Hotels, Canteen.

Operating costing is similar to unit costing method. Cost of rendering a unit of service
can be ascertained by the preparation of a Cost Sheet.

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Build-Up-Cost

The cost of operating is enumerated for a period say monthly, quarterly etc. They are
related to the service rendered during that period.

The build-up of cost depends upon whether only the service is rendered or whether
the service is first produced and then rendered. For example; in case of electric supply
company, electricity is first generated and then distributed.

The cost is build-up of –

1. First Cost or standing charges.

2. Semi-fixed or Repairs and maintenance.
3. Variable or Running or Operating charges

PROFORMA OF OPERATING COSTING

Particulars Total Per unit

(A) Standing charges –

1.Depreciation of vehicle xxx xx

2.Insurance of vehicle xxx xx
3.Tax xxx xx
4.Road services xxx xx
5.Interest xxx xx
6.Administration expenses xxx xx
Subtotal (A) xxx xx

(B)Maintenance charges –
xxx xx
1.Garage staff salaries xxx xx
2.Garage expenses xxx xx
3.Repairs & renewals xxx xx
4.Overhauling expenses xxx xx
5.Cleaning expenses
Subtotal(B) xxx xx
(C)Operating charges –
xxx xx
1.Petrol/Diesel xxx xx
2.Oil & Grease xxx xx
3.Salary of Drivers, Conductor, Cleaners xxx xx
4.Depreciation of tires, battery
xxx xx

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 Subtotal(D)

PROBLEMS

1. Union Transport Company supplies the following information in respect of a truck of

5 ton capacity-
Cost of the truck = Rs.90000
Estimated life = 10 years
Diesel, oil, grease = Rs.5 per trip each way
Driver’s wages = Rs.500 per month
Cleaner’s wages = Rs.250 per month

Insurance = Rs.4800 per year

Tax = Rs.2400 per year
General supervisor charges = Rs.4800 per year

The truck carries goods to and from the city covering a distance of 50kms each
way on onward trip. Freight is available to the extent of full capacity and on return
20% of capacity.
The truck runs on an average 25days a month, work out operating cost per ton
km.

Solution –
Calculation of Ton-km :-

Onward trip (50*5*25) = 6250

Return journey 50*(5*20%)*25 = 1250
Total Ton km = 7500

STATEMENT OF OPERATING COST

Period -1 month i.e., 25 days Units -7500 ton km

Particulars Total Per
unit
(A) Standing charges –
1.Insurance (4800 /12) 400
2.Depreciation (90000) = 9000 750
10 12
3.Tax (2400/12) 200
4.General supervision (4800/12) 400

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 1750 0.23
Subtotal(A)
- -
(B) Maintenance charges –
(C) Operating charges – 750
1.Diesel – 15 per trip(15 * 2 * 25) 500
2.Drivers wages 250
3.Cleaners wages
1500 0.20
3250 0.43
Subtotal (B)

Operating cost (A+B+C)

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