The canteen manager or supervisor keeps control over the costs and performs service costing to ascertain revenue of these business organizations. For collection of expenses specially in transport service, a book known as log book is maintained for each vehicle. In the log book all the expenses and activities of the vehicle during that specified period are recorded for cost calculation purpose, maintenance purpose and control on cost purpose. Most of the companies are following this policy of paying remuneration on monthly basis.
In this system a suitable cost-unit is adopted, which is not a job or process but is related to service rendered e.g. ton-kilometer, passenger-kilometer of transport services, unit of electricity or kilowatt hour, cubic meter of gas etc. A hotel is engaged in providing food, accommodation and other comforts to its customers. Costs incurred by a hotel may be fixed or variable. Fixed costs may include salaries of staff, depreciation of fixed assets etc., while variable costs may comprise lighting and power charges, wages of room attendants etc.
What would be the most appropriate way of apportioning depreciation costs across
The details shown in the log book enable the management to make suitable allocation of vehicles to avoid waste or idle running capacity. The records also provide data for the proper allocation of costs and in this respect, these may be compared with the production details available in a manufacturing concern. Operating costing method is one designed to ascertain and control the costs of the undertakings which do not produce products but which render services. Operating costing is also known as service costing.
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- The control of the cost of operating each vehicle.
- These are expenses which are more or less fixed in nature.
- Whereas, variable cost involves electricity charges, temporary staff salary, etc.
- Similarly, the cost unit of carrying a passenger by a transporter is naturally ascertained in terms of the distance traveled in kilometers.
- (iv) In the case of these undertakings, a proper distinction between fixed and variable cost is of utmost importance since the economies and scale of operations considerably affect the cost per unit of service rendered.
III. Allocating and apportioning overhead costs to cost centres
Vii) To ascertain whether the cost incurred on maintenance is excessively incurred or not. Iii) To keep the operating cost at the optimum level. (vii) This system requires a more detailed but simpler statistical data for proper costing.
Which of the following procedure is incorrect for attributing overhead costs to cost units?
This method is applicable to road transport undertakings, railways, tramways, airways, shipping companies, electricity companies, gas companies, hospitals, cinemas, hotels, canteens, water works etc. Operating Costing is also applied in those undertakings engaged in steam production. (iv) In the case of these undertakings, a proper distinction between fixed and variable cost is of utmost importance since the economies and scale of operations considerably affect the cost per unit of service rendered. For example, in case of a transport company if the buses run capacity packed, the fixed cost per passenger shall be lower. Operating costing is used by concern running diverse nature of activities, the cost system is obviously different in cinema halls composite cost unit is from that for manufacturing concerns.
Radiotherapy – per course of treatment per day or per person. It is generally full to the extent of 80% of its capacity. Find out the number of man-shows during the month. You may assume that period of summer and winter is six months each. V. Miscellaneous overheads like rent, rates, depreciation and insurance.
(b) Comparing the cost of maintaining one vehicle with the cost of another vehicle of the same type. To help to fix the hire charges of a vehicle where a vehicle is given on hire. (i) Number of trips (run kilometer) by the vehicle during a day. Costing procedures are similar for all operations. If the Depreciation is computed on the basis of the time factor, it (i.e., Depreciation) falls into the category of Fixed Operating Costs.
