7.

OPERATING COSTING

POSITIVE ATTITUDE CAN ONLY INCREASE

YOUR CHANCES OF SUCCESS
POSITIVE ATTITUDE + HARD WORK = SUCCESS
 7.2

Question 1. What is Operating Costing ?

OR
‘Operating costing’
Meaning: Operating Costing is the method of ascertaining costs of providing / operating /
rendering a service.
Applicability: It is applicable to undertakings that provide services rather than produce
commodities. The focus is on ascertaining the cost of services rather than the cost of
manufacturing a product.
Examples: This method is usually made use of by transport companies, gas and water works
departments, electricity supply companies, canteens, hospitals, theatres, schools etc. that are
engaged in the provision of services.

Question 2. How are cost units determined in the rendering of services ?

OR
Mention at least five activities where Operating costing is applicable.

The principle of operating costing is to accumulate costs under suitable headings and to express
them in terms of number of units of service rendered. Unlike production activities where cost unit
is readily ascertainable, operating costing requires the determination of cost units / denominator
factors for expression of costs.
Some illustrations of cost units usually used in various service undertakings are as below :
❖ Hospitals - Patient Days; Room days; Operations
❖ Hotels - Guest days; Room Days
❖ Passenger Transport - Passenger-Kilometers
❖ Cargo Transport - Quintal-Kilometers or Tonne-Kilometres
❖ Canteens - Number of meals served; Number of tea cups sold etc.
❖ Electricity Supply - Kilowatt Hours
❖ Boiler Houses - Quantity of Steam raised
❖ Cinema Houses - Number of Tickets; Number of shows

Question 3. Write short notes on Absolute and Commercial Tonne-Kilometres.

Composite units like Tonne-Kilometres, Quintal-Kilometres etc. may be computed in two ways.
(a) Absolute (weighted average) Tonne-Kilometres : This is the sum total of tonnes-kilometres,
arrived at by multiplying various distances by respective load quantities carried.
(b) Commercial (simple average) Tonnes-Kilometres : It is derived by multiplying total
distance (i.e. Kilometres), by average load quantity (Tonnes).

Question 4. How is the Operating Cost Sheet prepared ?

An Operating Cost Sheet is prepared in the following manner :
Cost Collection : For preparing a cost sheet under operating costing, costs are usually
accumulated for a specified period viz., a month, a quarter, or a year etc.
Cost Classification : The costs so accumulated 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.
When information about interest is specifically given, it is treated as a fixed cost.
Cost Expression : The total of costs so collected is divided by the denominator factor / cost unit,
applicable for the particular service, to determine the cost per unit of service rendered.

Question 5. Write short notes on Standard Load.

❖ Where the goods to be transported are of varying bulk and weight, the calculation of actual
number of tonne-kilometres may not be easy.
 7.3
❖ For example, if a business delivers its own products by its own transport, the cost per tonne-
kilometre may be most misleading, for an article may have a bulk which is twice that of the
other, though of the same weight.
❖ In such a case, 'standard load' is selected as the unit, i.e., the load which a lorry would
carry.

Question 6. Explain the cost unit used in Electricity Generation ?

Power houses engaged in electricity generation or steam generation use ‘Power House Costing.’
Operating cost statement can be prepared by identifying the costs associated with the power
generation or steam generation. Cost unit is different for electricity generation and steam
generation. For electricity generation, cost unit is cost per Kilowatt-Hour while for steam it is lb.
A pro forma for these organizations is given below:

Question 7. Explain the cost unit used in Hotels and Canteens?

Operating costing can be used effectively in hotels and canteens. While hotels are run purely on
commercial principles, canteen facilities are provided by several organizations by providing
subsidies. However it is necessary to compute the cost in both the cases to find out the profit or
loss at the end of a particular period. In this case, the costs associated with different products
offered should be identified and cost per unit should be worked out. The cost unit may be
number of meals served or any other dish offered to the customers.

COMPUTATION OF COST PER PASSENGER-KM

1. IN CASE OF BUS
Question1.1 ABC Transport Company has given a route 40 kilometers long to run bus. The bus costs the
company a sum of Rs.1, 00,000. It has been insured at 3% p.a. and the annual tax will amount to Rs.2, 000.
Garage rent is Rs.200 per month. Annual repairs will be Rs.2, 000 and the bus is likely to last for 5 years. The
driver’s salary will be Rs.300 per month and the conductor’s salary will be Rs.200 per month in addition to
10% of takings as commission [To be shared by the driver and conductor equally].
Cost of stationery will be Rs.100 per month. Manager-cum-accountant’s salary is Rs.700 per month.
Petrol and oil will be Rs.50 per 100 kilometers. The bus will make 3 up and down trips carrying on an 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.
Ans. Total takings 9000 per month, passenger kilometer 240000 per month, Fare per passenger Rs.1.50
Solution: Statement showing fare to be charged - I
Particulars Amount per Amount per
Annum Month
Rs. Rs.
A] Standing charges
Insurance @ 3% on Rs. 1,00,000 3,000
Tax 2,000
Garage Rent @ Rs. 200 per month 2,400
Driver's salary @ Rs. 300 per month 3,600
Conductor's salary @ Rs. 200 per month 2,400
Stationery @ Rs. 100 per month 1,200
Manager-cum accountant's salary @ Rs. 700 per month 8,400
Total Standing charges 23,000 1,916.67
B] Running Expenses
Depreciation Rs. 1,00,000/5 20,000 1,666.67
Repairs 2,000 166.66
Petrol and oil Re. 0.50 [40km x 2 x 3 x 25] 3,000.00
Commission* 900.00
Profit 1,350.00
Total Takings 9,000
 7.4
Fare per passenger kilometers [Rs. 9,000/2,40,000#] 0.0375
Fare per passenger [Rs. 9,000/6,000] Rs. 1.50
Computation of Commission and profit
❖ Let total takings be X, commission @ 10% = X/10, profit is 15% of takings
❖ Hence profit=15X/100=3X/20
❖ Total cost without commission = Rs. 6,750 [standing charges + Running charges].
❖ Hence X = Rs.6, 750 + X/10 + 3X/20
❖ Solving the equation for X, we get value of X = Rs.9, 000 which is total takings.
❖ Therefore, commission will be 10% of total takings = Rs.900
❖ Profit @ 15% of total takings = Rs.1, 350
# Total passenger kilometers are computed as shown below:
40 km X 2 [up and down] X 3 trips X 25 days X 40 passengers = 2,40,000 passenger km per month.

Question1.2 A bus started from Delhi for Mussoorie with 50 passengers on board, 20 passengers got off at
Dehradun and the bus proceeded with the remaining passengers. In the evening the same bus left Mussoorie
with 50 passengers. 10 passengers got off at Dehradun and the bus resumed its journey with remaining
passengers for Delhi. The distance between Delhi and Dehradun is 280 kms and between Dehradun and
Mussoorie is 20 kms. Compute the cost per Passenger-km, if the total cost of running the bus for this trip is
Rs.5,000. (Ans. Re.0.18657)

Question1.3 Carryall Enterprise has been permitted to run a minibus on a route covering 20 kms. one way.
The minibus has been purchased at a cost of Rs.10 lacs, part of which was financed through bank loan and
balance by loan from other sources.
The annual charges for the minibus are: comprehensive Insurance Rs.40,000, road tax Rs.20,000 and garage
rent Rs.12,000. Cost of repairs and maintenance is -estimated at Rs.60,000 per annum while replacement of
tyres, tubes etc. will cost Rs.4,800 per month. Office expenses are estimated at Rs.6,000 per month. Petrol
and oil will cost Rs.4.50 per km.
Two drivers and two conductors are engaged at a monthly salary of Rs.5,000 and Rs.3,500 each respectively.
In addition, drivers and conductors are entitled to 5% of the sale of tickets.
The effective life of the vehicle is estimated at 5 years at the end of which the vehicle will have scrap value of
Rs.1,00,000. The minibus is 24 seater and is expected to run 8 two way trips during the day for 25 days in a
month.
Submit passenger fare structure for approval by the transport authority which allows 20% profit on sales.
Interest on loan is allowed as cost if installments are paid regularly. Assume the amount of interest to be
Rs.67,200 per annum. (Ans. Total Takings Rs.1,15,200)

Question1.4 From the following data compute the cost per running mile:
Mileage run (annual) 15,000
Rs.
Cost of vehicle 25,000
Road license (annual) 750
Insurance (annual) 700
Garage rent (annual) 600
Supervision and salaries 1,200
Driver's wages per hour 30
Cost of fuel per gallon 30
Miles run per gallon 20 miles
Repairs and maintenance per mile 1.75
Tyre allocation per mile 0.70
Estimated life of vehicle (miles) 1,00,000
Charge interest at 5% per annum on cost of vehicle. The vehicle runs 20 miles per hour on an average.
Solution: Operating Cost Sheet
 7.5
Standing cost per annum: Rs.
Road license 750
Insurance 700
Garage rent 600
Supervisory Salaries 1,200
Interest 5% on Rs. 25,000 1,250
Total 4,500
Mileage run per annum – 15,000
(A) Standing cost per mile (4,500 / 15,000) 0.30
Running cost per mile:
Drivers' wages (Rs. 30 per hour for 20 miles) 1.50
Fuel cost per mile (Rs. 30/ 20 miles) 1.50
Repairs and maintenance 1.75
Tyre allocation 0.70
Depreciation (25,000/1,00,000) 0.25
(B) Running cost per mile 5.70
Total Cost per Running Mile (A + B) 6.00

Question1.5 The Union Transport Company has been given a 20 km long route to ply a bus. The bus costs
the company Rs. 1,00,000. It has been insured at 3% per annum. The annual road tax amounts to Rs. 2,000.
Garage rent is Rs. 400 per month. Annual repair is estimated to cost Rs. 2,360 and the bus is likely to last for
five years.
The salary of the driver and the conductor is Rs. 600 and Rs. 200 per month respectively in addition to 10% of
takings as commission to be shared equally by them. The manager's salary is Rs. 1,400 per month and
stationery will cost Rs. 100 per month. Petrol and oil will cost Rs. 50 per 100 kilometers. The bus will make
three round trips per day carrying on an average 40 passengers in each trip. Assuming j 15% profit on takings
and that the bus will ply on an average 25 days in a month, prepare operating cost statement on a full year
basis and also calculate the bus fare to be charged from each passenger per kilometer.
Solution: Union Transport Company
Statement showing operating cost of the bus per annum
A—Standing Charges:
Manager's salary (Rs. 1,400 x 12) Rs. 16,800
Driver's Salary (Rs. 600 x 12) 7,200
Conductor's salary (Rs. 200 x 12) 2,400
Road Tax 2,000
Insurance (3% of Rs. 1,00,000) 3,000
Garage rent (Rs. 400 x 12) 4,800
Stationery (Rs. 100 x 12) 1,200
Depreciation (Rs. 1,00,000 - 5 years) 20,000
57,400
B—Maintenance Costs – Repairs 2,360
C—Running charges:
Petrol and oil (36,000* km. x Rs. 50)/100 18,000
Total costs (A +B + C) 77,760
Add: 10%of takings for commission of driver and conductor
15% Profit - desired on takings
25% on total takings = 33-1/3 of cost 25,920
1,03,680
Calculation of total distance covered: (20 km x 2 x 3 x 25 x 12) = 36,000 km. per annum
Calculation of bus fare to be charged:
 7.6
Effective passenger-kilometers:
(2 x 20 km. x 3 trips x 40 passengers x 25 days x 12 months) - 14,40,000.
Rate to be charged per km. from each passenger = Rs. 1,03,680 ÷ 14,40,000 - Re. 0.072.

Question1.6 Peoples Transport Company has been given a route 20 km. long to run a bus. The bus costs
the company a sum of Rs. 50,000. It has been insured at 3% p.a. and the annual tax will amount to Rs. 1,000.
Garage rent is Rs. 100 p.m. Annual repairs will be Rs. 1,000 and the bus is likely to last for 5 years. 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 conductor equally.) Cost of stationery will be Rs. 50
p.m. Manager-cum-accountant's salary is Rs. 350 p.m. Petrol and oil will be Rs. 25 per 100 km. The bus will
make 3 round trips carrying on an 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: Operating Cost Sheet
Per annum Per month
Rs. Rs.
Standing Expenses:
Insurance charges (3% of Rs.50,000) 1,500
Taxes 1,000
Garage rent (100 x 12) 1,200
Driver's salary (150 x 12) 1,800
Conductor's salary (100 x 12) 1,200
Cost of stationery (50 x 12) 600
Manage-cum-Accountant's salary (350 x 12) 4,200 958.33
Standing expenses p.m. (11,500 ÷ 12)
11,500
Running Expenses:
Depreciation (10,000 ÷ 12) 833.33
Repairs (1,000 ÷ 12) 83.34
Petrol 750.00
Commission 350.00*
Total cost per month 2,975.00
Profit 15% on takings 525.00*
Total takings 3,500.00
Total effective passenger kms. per month = 20 km. x 3 x 2 trips x 25 days x 40 Passengers = 1,20,000
Fare per passenger km. (Rs.3,500 ÷ 1,20,000) = 3 Paise.
"Working Notes: In order to compute the amount of commission payable to the driver and the conductor,
total takings will have to be calculated.
Let total takings be x

Commission will be =
x
10

Profit to be charged =
15x   3x
100 20
Total cost per month without including commission is Rs.2,625 (i.e. 958.33 + 833.33 + 83.34 +750)
Taking = Total cost + Commission + Profit

x = 2,625 +
 x  + 3x
1020
5x  52500
or x =
20
20 or 20x = 5x + 52.500
15x = 52,500
x = 3,500
 7.7
Thus total takings = Rs.3,500
Commission = 10% of Rs.3,500 = Rs.350
Profit = 15% of Rs.3,500 = Rs.525

Question1.7 A transport company operates a bus service on 25 kms. long route. Purchase price
of the Chassis was Rs. 8.5 lakhs and it was furnished at a cost of Rs. 1.5 lakhs. It will have
residual value of Rs. 2 lakhs at the end of 5 years of normal working life. Annual road tax amount
to Rs. 24,000, while Insurance premium is valued at 2.5% of the total cost of the Bus. An annual
repair is estimated at Rs. 30,000. Garage rent is payable @ Rs. 4,000 per month. Tyre and tube
will cost 50 paisa per km.
Salaries of one driver and one conductor will be Rs. 3,500 and Rs. 2,500 per month respectively.
In addition, they will receive 10% of the collection as commission, which will be shared between
the Driver and Conductor in the ratio of 60:40.
Other Administrative salaries and expenses will cost Rs. 47,000 per annum.
Diesel Oil and lubricants will cost @ Rs. 4.50 per km.
The bus will make 4 round trips per day for 25 days in a month, carrying 42passengers in each
trip.
Assuming 20% profit on takings, prepare:
(a) Operating statement for a year, indicating Fixed and variable cost, and
(b) Cost per passenger – kilometer, with working notes.

2. WHEN NORMAL CAPACITY IS GIVEN

Question2.1 A transport service company is running five buses between two towns, which are 50
kilometers apart. Seating capacity of each bus is 50 passengers. The following particulars are obtained
from their books for April 2007.
Particulars Amount Rs.
Wage of Drivers, conductors and cleaners 2,40,000
Salaries of Office Staff 1,00,000
Diesel oil and other oil 3,50,000
Repairs and maintenance 80,000
Taxations and Insurance etc. 1,60,000
Depreciation 2,60,000
Interest and other expenses 2,00,000
Total 13,90,000
Actually, passengers carried were 75% of seating capacity. All buses ran on all day of the month. Each bus
made one round trip per day.
Find out the cost per passenger kilometer.
Ans. Total Cost Rs.1390000 , Passenger per kilometer 562500 , Cost per passenger kilometer
2.471
Solution: Operating Cost Statement April 2007
Particulars Amount Rs. Amount Rs.
A. Standing Charges
Wages of drivers, conductors and cleaners 2,40,000
Salaries of office staff 1,00,000
Taxation, insurance etc. 1,60,000
Interest and other expenses 2,00,000
Total standing charges 7,00,000
B. Running and maintenance charges
Repairs and maintenance 80,000
Diesel oil and other oil 3,50,000
Depreciation 2,60,000
Total running and maintenance charges 6,90,000
 7.8
C. Total cost [A+B] 13,90,000
D. Cost per passenger kilometer* Rs. 13,90,000/5,62,500
kilometers 2.471
*Passengers kilometers are computed as shown below.
Number of buses X Distance in one round trip X Seating capacity available X Percentage of seating capacity
actually used X Number of days in a month.
5 buses X 50 kilometers X 2 X 50 passengers X 75% X 30 days = 5, 62, 500

Question2.2 A person owns a bus which runs between Delhi and Chandigarh for 10 days in a month. The
distance from Delhi to Chandigarh is 240 kms. The bus completes the trips from Delhi to Chandigarh and back
in the same day. The bus goes another 10 days in a month to Agra and the distance covered being 200kms.
The trip is also completed in the same day. For the rest of 4 days, it runs in the local city. Daily distance
covered in local city is 60kms. Calculate the rate, the person should charge from passenger, when he wants to
earn a profit of 33 1/3% on his takings. The other particulars are given below:
Cost of bus Rs. 2,00,000.
Depreciation 20% per annum.
Salary of driver Rs. 1,600 per month
Salary of conductor Rs. 1,500 per month
Salary of part-time accountant Rs. 400 per month
Insurance Rs. 2,000 per annum
Diesel consumption : 6 kms per litre costing Rs. 4,00 per litre
Token tax Rs. 600 per annum
Repairs (variable cost) Rs. 1,000 per month
Normal capacity 50 passengers
The bus is generally occupied 90% of the capacity when it goes to Chandigarh and 80% when it goes to Agra. It
is always full when it runs within the city. Ans. Fare per passenger- km = Rs. 0.0544.

Question2.3 SITA Travels owns a bus and operates a tourist service on daily basis. The bus starts from New
city to Rest village and returns back to New city the same day. Distance between New city and Rest village is
250 kms. This trip operates for 10 days in a month. The bus also plies for another 10 days between New city
and Shivapur and returns back to New city the same day; distance between these two places is 200 kms. The
bus makes local sightseeing trips for 5 days in a month, covering a total distance of 60 kms per day.
The following data are given :
Cost of bus Rs.3,50,0000.
Depreciation 25% per annum (to be treated as running cost).
Driver's salary Rs.1,200 p.m.
Conductor's salary Rs. 1,000 p.m.
Part-time clerk's salary Rs.400 p.m.
Insurance Rs.1,800 p.a.
Diesel consumption 4 kms. Per litre @ Rs.8 per litre.
Token tax Rs.2,400 p.a.
Permit fee Rs. 1,000 p.m.
Lubricant oil Rs,100 for every 200 kms.
Repairs and maintenance Rs. 1,500 p.m.
Normal capacity 50 persons.
While plying to and from Rest village the bus occupies 90% of the capacity and 80% when it plies between
New city to Shiva pur (both ways). In the city the bus runs full capacity. Passenger Tax is 20% of net takings of
the Travels' firm. Calculate the rate to be charged to Rest village and Shiva pur from New city per passenger, if
the profit required to be earned is 33% of net takings of the firm. (Ans. Rs.47.86 and Rs.38.29)

Question2.4 A transport company maintains a fleet of buses as follows: 10 buses (90% of seats are
occupied in each trip) 5 buses (75% of seats are occupied in each trip)
 7.9
Carrying capacity of each bus is 40 passengers. Each bus makes six trips upwards and six trips downwards in a
day covering a distance of 10 Kms in one journey. Assuming that the fleet on road for 25 days in a month work
out the operating cost per passenger kilometer using the following particulars.
Rs.
Wages per driver 400 p.m.
Wages per conductor (2 conductors in a bus) 200 p.m.
Tiffin allowance per driver 6 per day
Tiffin allowance per conductor 4 per day
Diesel 5 Kms per litre at 1.35 per Litre
Oil 0.10 per Km.
Repairs per bus on an average 250 p.m.
Tyres, Tubes etc. per bus 850 p.m.
Depreciation for all buses (running cost) 2,40,000 p.a.
Servicing etc. per bus 600 p.a.
Interest on borrowed capital for all buses 80,000 p.a.
Insurance per bus 800 p.a.
Road tax per bus 2,000 p.a.
Misc. expenses per bus 125 p.a.
General supervision charges 36,000 p.a.
(Ans. Total passenger - kms = 15,30,000; Cost per km = Re.0.05)

Question2.5 Calculate total passenger kilometers from the following information:

Number of buses 6, number of days operating in a month 25, trips made by each bus per day 8, distance
covered 20 kilometres (one side), capacity of bus 40 passengers, normally 80% of capacity utilization.
Solution: Passenger Kms. = (6 Buses x 25 days x 8 trips x 2 round x 20 kms x 40 passengers x 80% capacity
utilization) = 15,36,000

Question2.6 A licence to ply a mini-bus between stations A and B covering a distance of 25 km. has been
obtained. The mini-bus will make 8 round trips in a day for 25 days in a month. It has a seating capacity of 30
passengers and on an average 60% occupancy is expected throughout. The purchase price of the bus is Rs.
6,00,000, It has a life of 10 years with a salvage value of Rs. 10,000 at the end of its life. The details of the
operating expenses are as under:
Insurance Rs. 12,000 per annum
Garage rent Rs. 2,000 per quarter
Rood Tax Rs. 3,000 per annum
Repairs Rs. 4,000 per quarter
Administration Rs. 1,000 per month
Driver's salary Rs. 3,000 per month
Conductor's salary Rs. 2,000 per month
Tyres and Tubes Rs. 3,000 per quarter
Diesel Rs. 12 per litre
Oil and Sundries Rs. 20 per 100 km run
The mini-bus consumes a litre of diesel for every 4 km of run. Passenger tax is 20% on total (Gross) taking. The
company requires a profit of 20% on total taking.
You are required to prepare ah annual cost sheet showing the cost per passenger kilometer and the one way
fare per passenger from station A to B.
Solution: Annual cost sheet
Standing Charges: Rs.
Insurance 12,000
Garage rent (Rs.2,000 x 4 quarters) 8,000
 7.10
Road tax 3,000
Repairs (Rs.4,000 x 4 quarters 16,000
Administration (Rs. 1,000 x 12 months) 12,000
Driver salary (Rs.3,000 x 12 months) 36,000
Conductor salary (Rs.2,000 x 12 months) 24,000
Tyres 4 Tubes (Rs.3,000 x 4 quarters) 12,000
Running Charges:
Depreciation (Rs.6,00.000 - Rs. 10,000 /10 years) 59,000
Diesel 3,60,000
(Refer to working notes (i) & (ii)
Oil & Sundries 24,000
(Rs. 20/100 km x 1,20,000) _______
Total Standing and Running costs 5,66,000
Rs. 5, 66, 000
Cost per passenger km = = Rs. 0.262
21, 60, 000 passenger km
(Refer to working note iii)
Profit 20% of Revenue (total taking)
Passenger Tax 20% of Revenue (total taking)
Total 40%
Revenue (Taking) 100%
So, Cost (per passenger km. 60%) = Rs.0.262
0.262
Or Fare per passenger Km. = x 100 = Rs. 0.4367
60
Fare for 25 km = 25 km x Rs. 0.4367 - Rs. 10.92
Working Note:
(i) Computation of Km run:
25 km x 2 x 8 trips x 25 days x 12 months
= 1,20,000 km
1, 20, 000 km
(ii) Diesel x Rs. 12 = Rs. 3,60,000
4 km
(iii) Computation of passenger km
60
1,20,000 km x 30 passengers x = 21,60,000 passenger kilometer
100

Question2.7 City Bus Service Ltd. runs the following fleet of buses within the limits of Ajmer City:
Carrying Capacity
10 Buses 50 Passengers
15 Buses 40 Passengers
On an average, each bus makes 10 trips a day covering a distance of 8 kilometers In each trip, 75% of the seats
are occupied. The annual records show that 5 buses are generally required to be kept away from roads each
day for repairs. The following expenses were incurred by the company during March; 2000:
Expenses Rs.
Garage. Rent, Rates and Insurance 2,500
Road and Vehicle tax 500
Salary : Chief Operating manager 1,500
3 Assistant Managers 800 Each
4 Supervisors 400 Each
25 Drivers 240 Each
30 Cleaners 100 Each
 7.11
Office Staff 4,000
Consumable Stores 4,500
Petrol 24,000
Lubricants 5,500
Replacement of tyres and tubes 1,750
Gas & Electricity 350
Miscellaneous expenses 1,800
Repairs 3,500
The Cost Clerk of Company prepared a Cost Sheet using the actual figures for various expenses and writing off
Rs. 6,500 for depreciation. Show the Cost Sheet in proper form as might have been prepared by the cost clerk.
Solution: In this question, we are given that 5 buses are kept away from roads every day for repairs.
Specification Totol Km. Passenger- km.
50 Passengers 8 km/trip x 10 trips/days x31 75
(10 Buses) day x 10 buses = 24,800 24,800 x (50 x 100) = 9,30,000
40 Passengers 8 x 10 x 31 x 15= 37,200 75
(15 Buses) 37,200 x (40 x 100) = 11,16,000
62,000 20,46,000
Since 5 buses out of 25 buses are kept for repairs everyday
Actual total km. 62,000 x 20/ 25 = 49,600
Actual Passengers km. 20,46,000 x 20/25 = 16,36,800
Operating Cost Statement
Particulars Total Per Passenger
Standing Charges:
Garage Rent, Rates and Insurance 2,500
Road and Vehicle Tax 500
Salary
Chief operating Manager 1,500
Assistant Manager ( 3x 800) 2,400
Supervisors (4x400) 1600
drivers (25x240) 6,000
Cleaners (30x100) 3,000
Office Staff 4,000
Gas & Electricity 350
Miscellaneous 1,800
23,650 0.0145
Running Charges:
1) Consumable Stores (4,500/16,36,800) 0.0027
2) Lubricants (5,500/16,36,800) 0.0034
3) Depreciation (6,500/16,36,800) 0.0040
4) Repairs (3,500/16,36,800) 0.0021
5) Petrol (24,000/16,36,800) 0.0147
6) Replacement of tyres & tubes (1,750/16,36,800) 0.0011 0.0425
Cost per passenger- km.
Question 2.8 A transport service company is running 4 buses between two towns which are 50 miles apart. Seating
capacity of each bus is 40 passengers. The following particulars were obtained from their books for April, 2012.
(Rs.)
Wages of drivers, Conductors and Cleaners 2,400
Salaries of Office and Supervisory Staff 1,000
 7.12
diesel and 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 days of the month. Each bus
made one round trip per day. Find out the cost per passenger mile
QUESTION 2.9 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 way
Repairs and maintenance (Rs.)500 p.m.
driver’s wages (Rs.) 500 p.m.
Cleaner’s wages (Rs.) 250 p.m.
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 kms. 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:
Operating cost tonne-km.
Rate for tonne per trip that the company should charge if a profit of 50% on freight is to be earned.

3. CAR
Question3.1 Shankar has been promised a contract to run a tourist car on a 20km long route 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.500 per month for a garage where he keeps the car
when it is not in use. The repair costs are estimated at Rs.4,000 p.a. The car is estimated to have a life of 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 per month plus 10% of the takings as commission. Other incidental
expenses are estimated at Rs. 200 per month. Petrol and oil will cost Rs. 100 per 100kms. The car will make 4
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 he charge per k.m.? Ans. Rs. 2.206
Question3.2 Mr. Jaidka owns a fleet of taxis and the following information is available from the records
maintained by him.
I Number of taxis 10 VII. Garage rent 600 p.m.
II. Cost of each taxi Rs.20,000 VIII. Insurance premium 5% p.a.
III. Salary of manger 600 p.m. IX. Annual tax 600 per taxi
IV. Salary of accountant 500 p.m. X. Driver's salary 200 p.m. per taxi
V. Salary of cleaner 200 p.m. XI. Annual repair 1,000 per taxi
VI. Salary of mechanic 400 p.m.
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% 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 monthly total cost and the cost of running taxi per effective km. Prepare operating cost sheet.
(Ans. Rs.16,366.68 and Re.0.779)

Question3.3 From the following particulars, calculate the cost per running kilometer of a taxi:
Particulars Rs.
Cost of vehicle 25,000
 7.13
Road license Fee for the year 750
Supervision and Salary (yearly) 1,800
Drivers wages per hour 4
Cost of fuel per litre 1.50
Repairs per kilometer 1.50
Tyre cost per kilometer 1.00
Garage rent per year 1.800
insurance per year 850
Kilometers run per litre 8
Kilometer run during the year 15,000
Estimated life of vehicle 1,00,000 kms
Charge interest at 10% on the cost of vehicle.
The vehicle runs 20 kms per hour on an average. (Ans. Rs.3,70)

Question3.4 Mr. Nihal started transport business with a fleet of 10 taxis. The various expenses incurred by
him are given below:
(a) Cost of each taxi Rs. 75,000.
(b) Salary of office staff Rs. 1,500 p.m.
(c) Salary of garage staff Rs. 2,000 p.m.
(d) Rent of garage Rs. 1,000 p.m.
(e) Driver's salary per taxi Rs. 400 p.m.
(f) Road tax and repairs per taxi Rs. 2,160 p.a.
(g) Insurance premium @ 4% of cost p.a.
The life of a taxi is 3,00,000 km. and 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% 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 a taxi per km. If the hire charge is Rs. 1.80 per km, find out the profit
Mr. Nihal may expect to make in the first year of operation.
Solution: Operating Cost Sheet
Particulars Per Per km.
Month Rs.
Standing costs per taxi:
1. Salary of office staff (1,500 ÷ 10) 150
2. Salary of garage staff (2,000 ÷ 10) 200
3. Garage rent (1,000 ÷ 10) 100
4. Drivers salary 400
5. Road tax and repairs (2,160 ÷ 12) 180
6. Insurance (3,000 ÷ 12) 250 0.400
Standing cost per taxi 1,280
Standing cost per km. (1,280 ÷ 3,200)

Running costs:

1. Depreciation
 75, 000  15, 000  0.250
2, 40, 000* km.
(6.30 x4, 000) Rs.2.800
2. Petrol per month = = Rs.2,800 Per effective km. =
9 3, 200 km. 0.875
3. Oil and other sundries
10 x 4, 000
Per month = = Rs.400
100 0.125
 7.14
Rs.400
Per effective km. =
3, 200km.
Operating cost per effective km. 1.65
Calculation of Profit in First Year
Particulars Rs.
Hire charges per km. 1.80
Operating cost effective per km. 1.65
Profit per effective km. 0.15
Profit for one year (3,84,000 km. @ 0.15 per km.) = Rs.57,600
*Working Notes:
1. Effective km. per month = 4,000 - 20% = 3,200 km.
2. Effective km. of life of a taxi = 3,00,000 - 20% = 2,40,000 km.
3. Effective km. for first year of operation for all the 10 taxis = 3,200 x 12 x 10 - 3,84,000 km.

COMPUTATION OF COST PER TONNE-KM

4. IN CASE OF TRUCK
Question4.1 Ascertain the cost of carrying one ton of goods for a distance of one km. from the following
particulars :
Freight: Full capacity outward, 50% on return journey.
Annual charges: Monthly charges:
Insurance @ 2%; Driver's salary Rs.750;
Repairs and maintenance Rs.4,500 Coolie Rs.500
Garge rent Rs.3,600 Petrol etc., Rs. 100 for every 100 kms.
Taxes Rs.6,000;
Interest @ 18% to be charged
Tyre, Battery, etc. Rs.6,500;
Additional Information
(1) Cost of Truck = Rs.3,00,000.
(2) Scrap value after 5 years = Rs.25,000.
(3) Capacity 4 tons.
(4) Daily distance covered 200 kms. (100 outward and 100 return)
(5) Working days in a month 25.
(6) Depreciation is a running cost. (Ans. Rs.1.17)

Question4.2 The following information relates to a Truck of 5 ton capacity. Cost of Truck Rs.20,000
(estimated life 10 years).
Particulars Rs.
insurance (Annual) 4,800
Road Tax (Annual) 2,400
Supervision (Annual) 4,800
Repairs (Monthly) 500
Cleaner's wages (Monthly) 250
Driver's wages (Monthly) 500
Diesel, Oil etc. per trip each way 18
One round trip per day of 60 km. each way. Capacity utilized 100% outward trip and 20% return trip. Average
operation.25 days in a month. You are required to find :
(i) Operating cost per ton-km. considering depreciation as running cost,
(ii) Rate per ton per k.m. to be charged to earn a profit of 50% on freight.
(Ans. (i) Re. 0.3685 (ii) Re. 0.737)
 7.15

Question4.3 The following were the expenses incurred by a company in operating two truck (for the
conveyance of raw material) and a Bus (for the conveyance of staff) during the month of July, 2001.
(Rs.)
Truck A Truck B Bus C
Driver's salaries 800 850 900
Cleaner's Wages 400 500 400
Diesel 1,700 1,900 1,100
Oil 50 60 40
Repairs 300 200 300
Depreciation (running cost) 1,500 1,800 2,000
Supervision 600 600 600
Garage overhead 200 250 200
Road and other tax 400 400 300
Other overhead expenses 350 400 200
Following additional information is given.
Truck Days worked in a month Kms. per day Load carried
A 25 300 4 tons
B 25 400 4.8 tons
C 25 80 25 passengers
From the above statistics prepare an operating cost sheet for three vehicles.
(Ans. Total Cost Rs.6,300, Rs.6,900 and Rs.6,040)

Question4.4 A truck starts from Delhi with a load of 12 tons for Bharatpur, a distance of 150 kms, where it
unloads 4 tons. From there it goes to Agra, a distance of 50 kms and unloads 6 tons there. At Agra 3 more tons
are loaded with which the truck comes to Modinagar, a distance of 100 kms and unloads 2 tons. Then the
truck comes back to its head office at Delhi with 3 tons already picked up at Agra. Distance between
Modinagar and Delhi is 40 kilometers Calculate 'absolute ton-kms' and 'commercial ton-kms'.
(Ans. Absolute ton km 2,820; Commercial ton km 2,380)

5. IN CASE OF LORRY
Question5.1 A Transport company charges Rs.120 per ton for a 5 tons lorry-load from A station to B
station. The charges for return trip are Rs.110 per ton. In the month of July, 2000, a truck has made 10
outward journeys with full load out of which 3 tons were unloaded twice at C station on the way. It returned
without any load once only from C station to A station. The expenses incurred were :
Annual fixed charges Rs.38,400; annual maintenance Rs. 19,200; and monthly running charges Rs.2,404. You
are required to find the cost per ton-kilometers (absolute) and the profit for the month of July, 2000,
assuming that no concession is made for delivery at the intermediate -Distance from A station to B station is
210 kms. and from A to C station 120 kms. The truck carried a load of 8 tons 5 times in the month while
returning from B station but was one caught by the police and was fined Rs.2,000.
[Ans.: Cost per absolute ton-km = Re.0.313. The amount of fine is not included in the cost, however, it may
be reduced from the revenue. As such, Net Revenue = Rs. 11,150. Amount of profit = Rs.3,946. Total Absolute
ton-km = 23,010].

Question5.2 Iron ore is transported from two mines A and B and unloaded at plots in a railway station. A is
at distance of 10km. and B is at a distance of 15 km. from the railhead plots. A fleet of lories of 5 tones
carrying capacity is used for the transport of ore from the mines. Records reveal that the lories average speed
of 30 km. per hour when running and regularly take 10 minutes to unload at the rail head. At Mine A, loading
time avg. is 30 minutes per load while at mine B loading time average 20 minutes per load.
 7.16
Driver's wages, depreciation, insurance and taxes are found to cost Rs. 9 per hour operated. Fuel, oil, tyres,
repairs and maintenance cost Rs. 1.20 per km. Draw up a statement showing the cost per tone kilometer of
carrying iron ore from each mine.
Solution: Operating Cost Sheet
Mine A Mine B
Distance (km) 10 15
Ton Kilometers (Distance x weight) 50 75
Time per trip (minutes)
Loading time 30 20
Unloading time 10 10
Running time 40 60
Total(minutes) 80 90
Rs. Rs.
Driver's wages, depreciation, insurance & taxes 12.00 13.50
Fuel, oil, tyres, repairs etc. 24.00 36.00 36.00 49.50
Cost per ton km. 36/50 49.50/75
= Rs. 0.72 = Rs. 0.66
Working Notes:
1. Driver wages etc. are Rs. 9 per hour For Wine A - Rs. 9 x 80 minutes = Rs. 12
60 minutes
2.Fuel, oil etc. per km. = Rs. 1.20 For Mine A for 20 Km. of return journey = 20 km x Rs. 1.20 = Rs. 24
For Mine B = 30 Km x Rs. 1.20 = Rs. 36

Question5.3 A lorry starts with a load of 20 tonnes of goods from station A. It unloads 8 tonnes at station B
and rest of goods at station C. It reaches back directly to station A after getting reloaded with 16 tonnes of
goods at station C. The distance between A to B, B to C and then from C to A are 80 kilometers 120 kilometers,
and 160 kilometers, respectively. Compute 'Absolute tones-Kilometers' and 'Commercial tones-kilometers'
Solution: Absolute tonnes - km = 20 tonnes x 80 km + 12 tonnes x 120 km + 16 tonnes x 160 km. = 5,600 tonnes-km
Commercial tonnes - km = Average load x total kilometers traveled= (20 + 12 + 16)/3 tonnes x 360 km = 5,760 tonnes-km.

Question5.4 Fast Automobiles distributes its goods to a regional dealer using a single Lorry. The dealer's
premises are 40 kilometers 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 1990:-
Petrol consumption 8 kilometers per litre
Petrol cost Rs. 13 per litre
Oil Rs. 100 per week
Driver's wages Rs. 400 per week
Repairs Rs. 100 per week
Garage rent Rs. 150 per week
Cost of lorry (excluding tyres) Rs. 4,50,000
Life of lorry 80,000, kilometers
Insurance Rs, 6,500 per annum
Cost of tyres Rs. 6,250
Life of tyres 25,000 kilometers
Estimated sale value of lorry at end of its life Rs. 50,000
Vehicle license cost Rs. 1,300 per annum
Other overhead cost Rs. 41,600 per annum
The Lorry operates on a five day week Required:
(a) A statement to show the total cost of operating the vehicle for the four weekly periods analysed into
running costs and fixed costs.
 7.17
(b) Calculate the vehicle cost per kilometer and per tonne kilometer.
Solution: Operating Cost Sheet
Per Four
Standing Costs: Weeks Rs.
Garage rent (150 x 4) 600
( 6,500 500
Insurance x x 4 weeks)
52 weeks
52 weeks
( 1,300 100
Licence cost x 4 weeks)
52 weeks

(41, 600 3,200

Other overhead x 4 weeks)
52 weeks
Total Standing Cost
Running Costs: 4,400
Petrol cost * 5,200
Oil expenses 400
Driver's wages 1,600
Repairs 400

Tyre cost
 Rs.6.250 x 3, 200* km. 800
25, 000 km.

Depreciation
 Rs.4,50, 000 – 50, 000 
x 3,200* km.
16,000
80, 000
Total Running Cost 24,400
Total Cost (Fixed + Running) 28,800
Cost per km. = Rs.28,800 ÷ 3,200 km= Rs.9
Rs.28,800
Cost per tonne km. = = Rs.1.80
*16, 000 tonnes  km.
*Working Note: Petrol cost for four weeks is computed as follows:
Kms. travelled = 40 km. x 2 return trip x 2 trips x 20 days = 3,200 km.
3, 200 km.
Total consumption of petrol in four weeks = = 400 litres.
8 km.
Cost of petrol 400 litres @ Rs.13 = Rs.5,200
Total tonne-km. = 40 kms x 2 trips x 20 days x 10 tonnes = 16,000 tonne kms.

6. HOTEL INDUSTRY
Question6.1 A lodging home is being run in a small hill station with 50 single rooms. The home offers
concessional rates during six off- season months in a year. During this period, half of the full room rent is
charged. The management’s profit margin is targeted at 20% of the room rent. The following are the cost
estimates and other details for the year ending on 31st March 2006. [Assume a month to be of 30 days].
I] Occupancy during the season is 80% while in the off- season it is 40% only.
II] Expenses:
➢ Staff salary [Excluding room attendants] Rs.2, 75, 000
➢ Repairs to building Rs.1, 30, 500
➢ Laundry and linen: Rs.40, 000
➢ Interior and tapestry: Rs.87, 500
➢ Sundry expenses: Rs.95, 400
III] Annual depreciation is to be provided for buildings @ 5% and on furniture and equipments @ 15% on
straight-line basis.
 7.18
IV] Room attendants are paid Rs.5 per room day on the basis of occupancy of the rooms in a month.
V] Monthly lighting charges are Rs.120 per room, except in four months in winter when it is Rs.30 per room
and this cost is on the basis of full occupancy for a month.
VI] Total investment in the home is Rs.100 lakhs of which Rs.80 lakhs relate to buildings and balance for
furniture and equipments.
You are required to work out the room rent chargeable per day both during the season and the off-season
months on the basis of the foregoing information.
Ans. Room rent per day during season 197 & during off season 98.50
Solution: Before preparing statement of total estimated costs, some working notes will be required.
They are shown:
I] Computation of Estimated Cost for the year Ending 31st March 2006
Particulars Amount Rs.
Salary 2,75,000
Repairs 1,30,500
Laundry and linen 40,000
Interior decoration 87,500
Depreciation:
5% on Rs.80 lakhs: Rs. 4,00,000
15% on Rs. 20 lakhs: Rs. 3,00,000 7,00,000
Miscellaneous expenses 95,400
Total Costs 13,28,400
II] Number of room days in a year.
➢ Occupancy during season for 6 months @ 80% [50 X 0.80 X 6 X 30] = 7200
➢ Off-season occupancy for 6 months @ 40% [50 X0.40 X 6 X 30] = 3600
➢ Total number of room days during a year = 10, 800
III] Attendant’s salary
❖ For 10, 800 room days @ Rs.5 per day = Rs.54, 000
IV] Light charges for 8 months @ Rs.120 per month i.e. Rs.120/30 = Rs.4 per room day
❖ Light charges for 4 months @ Rs.30 per month, i.e. Rs.30/30 = Re.1 per room day
❖ Total lighting charges:
❖ During season @ Rs.4 for 7200 days = Rs.28, 800
❖ During off season 2 months @ Rs.4 for 1200 days [2/6 x 3600] = Rs.4, 800
❖ During 4 months of winter @ Re.1 for 2, 400 days [4/6 x 3600] = Rs.2, 400
❖ Total lighting charges: Rs.36, 000
Note: It is given in the example that during four months of winter, the lighting is Rs.30 per room, which is 1/4
th

of the lighting charges during the remaining period of the year. Hence the rate of room day which is Rs.4 will
also be 1/4 for winter period and so it is taken as Re.1 per room day.
th

Statement of Total Estimated Cost

Particulars Amount Rs.
Expenses as shown in I above 13,28,400
Attendant's salary as shown in III above 54,000
Lighting charges as shown in IV above 36,000
Total cost 14,18,400
Computation of total Full Room Days.
❖ During season: 7, 200
❖ off-season: 1, 800 [Equivalent to 50% rate of 3, 600 days]
❖ Total Full Room Days: 9, 000
Computation of Room Rent
❖ Cost per room day: Rs.14, 18, 400 /9, 000 = Rs.157.60
❖ Add: Profit margin at 20% of rent or 25% of cost = Rs.39.40
❖ Room Rent = Rs.197.00
❖ Thus, during season, room rent of Rs.197 is to be charged while in the off-season room rent of
Rs.98.50 is to be charged.
 7.19

Question6.2 A hotel has a capacity of 100 single rooms and 20 double rooms. The average occupancy of
both single and double room is expected to be 80% throughout the year of 365 days. The rent for the double
room has been fixed at 125% of the rent of the single room. The costs are as under:
Variable costs: Single room Rs.220 each per day, double room Rs.350 each per day
Fixed costs: Single room Rs.120 each per day, double room Rs.250 each per day
Calculate the rent chargeable for single and double rooms per day in such a way that the hotel earns a margin
of safety of 20% on hire of room. (10 marks)
Ans. Rent per day per single room =Rs.460 & Rent per day per double room = Rs.575
Solution: Occupancy:
Single rooms: 100 rooms X 365 days X 80/100 = 29, 200
Double rooms: 20 rooms X 365 days X 80/100 = 5,840
Statement Showing Total Costs
Particulars Amount Rs. Amount Rs.
Variable costs:
Single rooms: 29200 x 220 64,24,000
Double rooms: 5840 x 350 20,44,000 84,68,000
Fixed Costs:
Single rooms: 29200 x 120 35,04,000
Double rooms: 5840 x 250 14,60,000 49,64,000
Total costs 1,34,32,000
Margin of safety 20%, so break even point 80%
❖ Sales at break-even-point = Total Costs = Rs.1, 34, 32,000
❖ Total revenue = Rs.1, 34, 32, 000 X 100 /80 = Rs.1, 67, 90, 000
❖ Single room = 29200 X 1 = 29200 days
❖ Double room = 5840 X 1.25 = 7300 days
❖ Total notional single room days = 36500
❖ Rent per day per single room = Rs.1, 67, 90, 000 /36, 500 = Rs.460
❖ Rent per day per double room = Rs.460 X 1.25 = Rs.575

7. POWER INDUSTRY
Question7.1 From the following data pertaining to the year 1997-98 prepare a cost sheet showing the cost
of electricity generated per k.w.h. by Chambal Thermal Power Station.
Total units generated 10,00,000k.w.h. Rs.
Operating labour 50,000
Repairs & maintenance 50,000
Lubricants, spares and stores 40,000
Plant supervision 30,000
Administration overheads 20,000
Coal consumed per-kwh for the year is 2.5 k.g. @ Rs. O.02 per kg. Depreciation charges @ 5% on capital cost of Rs. 2,00,000.
Solution: Power House Cost Statement
Per annum Per k.w.h.
Fixed costs: Rs. Rs.
Plant supervision 30,000
Administration overheads 20,000
Depreciation (5% of Rs. 2,00,000 p.a.) 10,000
Total Standing cost: (A) 60,000 0.06
Variable costs:
Operating labour 50,000 0.05
Lubricating, spares & stores 40,000 0.04
Repairs & maintenance 50,000 0.05
Coal cost .(refer to working note) 50,000 0.05
 7.20
Total Running costs: (B) 1,90,000
Total Cost [(A) + (B)] 2,50,000 0.25
Working note:
Coal cost 10,00,000 k.w.h. x 2.5 kg x Rs. 0.02 per kg. = Rs. 50,000

8. WHEN FARE IS NOT CHARGED ON EQUAL BASIS

Question8.1 Viveka Elementary School has a total of 150 students consisting of 5 sections with 30 students
per section. The school plans for a picnic around the city during the weekend to places such as zoo, the
amusement park, the planetarium etc. A private transport operator has come forward to lease out the buses for
taking the students. Each bus will have a maximum capacity of 50 [excluding 2 seats reserved for the teachers
accompanying the students]. The school will employ two teachers for each bus, paying them an allowance of
Rs.50 per teacher. It will also lease out the required number of buses. The following are the other cost
estimates:
Breakfast: Rs.5 per student
Lunch: Rs.10 per student
Tea: Rs.3 per student
Entrance fee at zoo: Rs.2 per student
Rent: Rs.650 per bus
Special permit fees Rs.50 per bus
Block entrance fees at the planetarium Rs.250
Prizes to students for games: Rs.250
No costs are incurred in respect of accompanying teachers. [Except the allowance of Rs.50 per teacher] You
are required to prepare a statement showing the total cost and also average cost per student for the levels of
30,60,90,120 and 150 students.
Ans. Total cost 1900 , 3300 , 3900 , 5300 , 5900
Solution: Statement showing Cost per Student at Various Levels
Particulars 30 60 90 120 150
Students Students Students Students Students
Rs. Rs. Rs. Rs. Rs.
I] Variable costs
Break fast 150 300 450 600 750
Lunch 300 600 900 1200 1500
Tea 90 180 270 360 450
Entrance fees 60 120 180 240 300
Total [1] 600 1200 1800 2400 3000
II] Semi-variable cost
Rent of bus 650 1300 1300 1950 1950
Permit fees 50 100 100 150 150
Allowance to teachers 100 200 200 300 300
Total [II] 800 1600 1600 2400 2400
III] Fixed costs
Block entrance fees at planetarium 250 250 250 250 250
Prices to students 250 250 250 250 250
Total [III] 500 500 500 500 500
IV] Total Costs [I+II+III] 1900 3300 3900 5300 5900
Average cost per student 1900/30 3300/60 3900/90 5300/120 5900/150
63.33 55 43.33 44.17 39.33

Question8.2 A school has ten 50 seater buses. Cost of each bus is Rs.8,50,000 with salvage value of
Rs.50,000 and an estimated effective life of 10 years. The school has a separate transportation section in the
school premises. The rent apportioned to this section is Rs.60,000 per annum. Salary of transport officer is
Rs.3,000 per month and establishment expenses of this section amount to Rs.8,000 per month in addition. The
 7.21
school is close for two months in summer, fifteen days in autumn and for fifteen days during winder. In the
remaining period the buses operate on the average for 20 days in a month. However, students are charged
bus fee per 11 months in a year, though the entire staff is paid salary for the full year. The bus covers a
distance upto 15 kms. from the school both in the morning and evening. About 30 students in each bus are
from a distance upto 5 kms, 10 students from distance upto 5 to 10 kms., and 10 students from a distance
between 10 to 15 kms. The monthly charge from second category of students is double compared to that in
the first and that from third category the charge is three times that from the first category. Within each
category all students, are charged equally.
Expenses relating to buses are as follows :
Driver's salary Rs. 3,000 per month
Conductor's salary Rs. 2,500 per month.
Annual maintenance and repair Rs. 9,440 per bus.
Diesel Rs.8 per litre, each litre sufficing 2 kms. of running
Lubricants Rs.20 per litre, each litre sufficient for 100 kms.
Prepare operating cost sheet.
[Ans.: Rs.250; Rs. 5OO and Rs.750 per student per month].

Question8.3 EPS is a Public School having 25 buses each plying in different directions for the transport of
its school students. In view of large 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 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 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 traveled by each bus, one way is 16 km. The school works 24 days in a month and remains closed
for vacation in May and June. The bus fee, however, is payable by the students for all the 12 months in a year.
The details of expenses for the year 2003-2004 are as under:
Driver's salary - payable for all the 12 months Rs. 5,000 per month per driver
Cleaner's salary payable for all the 12 months Rs. 3,000 per month per cleaner
(one cleaner has been employed for every five buses)
License fees, taxes etc. Rs. 2,300 per bus per annum
Insurance Premium Rs. 15,600 per but per annum
Repairs and Maintenance Rs. 16,400 per bus per annum
Purchase price of the bus Rs. 16,50,000 each
Life of the bus 16 years
Scrap value Rs. 1,50,000
Diesel cost Rs. 18.50 per litre
Each bus gives an average of 10 km per litre of diesel. The seating capacity of each bus is 60 students. The
seating capacity is fully occupied during whole year.
The school follows differential bus fees based on distance traveled as under:
Students picked up and Bus Fee Percentage of students
Dropped with in the range of availing this facility
Distance from the school
4 Km 25% of full 15%
8-km 50% of full 30%
16 km full 55%
Ignore interest. Since the bus fees has 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 25
busses for a year.
(ii) Work out average cost per student per month in respect of:
a. Students coming from a distance of upto 4 km from the school:
b. Students coming from a distance of upto 8 km from the school; and
 7.22
c. Students coming from a distance of upto 16 km from the school

ANSWER;(I) 2,52,082 63,02,050

ANSWER (II)
Rs. 59.34

Rs. 118.68
Rs. 237.36

Question8.4 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 kms. 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 Rs. 450 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. 860 per bus per annum
Insurance Rs. 1,000 per bus per annum
Repairs & maintenance Rs. 3,500 per bus per annum
Purchase price of the bus Rs. 1,50,000 each
Life 12years
Scrap value Rs. 30,000
Diesel cost Rs. 2,00 per iitre
Each bus gives an average mileage of 4 km. per utre of diesel.
Seating capacity of each bus is 50 students.
The seating capacity is fuliy occupied during the whole year.
Students picked up and dropped within a range upto 4 kms. of distance trom 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 fieet 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 kms. from the schooi and
(5) students coming from a distance beyond 4 kms. from the school.
Solution
(i) SMC Public School
Operating Cost Statement
Particulars Rate Per Bus Pleet of 5
Per annum busesp.a.
Rs. No. Rs. No. Rs.
Driver’s salary 450 p.m. 1 5,400 5
27,000
Cleaner’s salary 350 p.m. 1/5 840 1
4,200
Licence fee, taxes etc. 360 p.a. 860 4,300
 7.23
Insurance 1 000 p.a. 1,000 5,000
Repairs & maintenance 3,000 p.a. 3,500 17,500
Depreciation 10,000 p.a. 10,000 50,000
Diesel (see Note 1) — 7,200 36,000
Total: 28,800 1,44,000
Cost per month 2,400 12,000
(ii) No. of students on half fee basis
(See note 2) 150 750
(A) Cost per student (half fee) Rs. 16.00 Rs. 16,00
(B) Cost per student (full fee) Rs. 32.00 Rs. 32,00
Working Notes:
1. Calculation of Diesel Cost per bus:
Number of trips of 8 kms. each/day 8
Distance travelled per day by a bus 8x8 km/trip=64 km.
Distance travelled during a month 64x25=1,600 km.
Distance travelled p.a. (May, June 1,600x9=14,400 km.
and December being vacation)
Mileage 4 Km./litre.
Diesel required 14,400/4=3,600 litres.
Cost of diesel 3600 litres Rs. 2 Der litre = Rs. 7,200 p.a per bus.

2. Calculation of number of students per bus:

Bus capacity 50 students
Halffare 50% i.e,. 25 students
Full fare 50% ie., 25 students
Full fare students as equivalent
to half fare students ie., 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 tuden
ts

Question8.5 The following cost data pertaining to the year 2010-2011 have been collected from
the books of ABC Power Co. Ltd. prepare a cost sheet indicating the cost of generation of
power per unit of KWH. Total unit generated are 15,00,000.
Rs.
Operating Labour 16,500
Plant Supervision 5,250
Lubricant & Supplies 10,500
Repairs and maintenance 21,000
Capital Cost 1,50,000
Administrative Overheads 9,000
Coal consumed per KWH 1.5 lbs. and cost of coal delivered to the power station is Rs. 33.06 per
metric tonne. Depreciation rate chargeable is 4% per annum and interest on capital is to be
taken at 7%.
[Given: 1 Metric tonne = 2,204.62 lbs.]

9. MISCELLANEOUS
Question9.1 Mr. X, an employee of a company, uses his own car for official purposes and the company
reimburses him at Rs,1.80 per km. He claims that the re-imbursement should be at higher amount. A scrutiny
of expenses incurred on car reveals the following:
 7.24
1. Oil change Rs.120 (every 4,800 kilometers)
2. Maintenance Rs. 1,800 (every 9,600 kilometers)
3. Yearly insurance premium Rs.4,000.
4. Cost of the car is Rs. 1,08,000. The residual value after useful life of 3 years is Rs.60,000.
5. Petrol price is Rs.5 per litre and 8 kilometers are traveled on one litre.
Mr. X travels an average of 192 kilometers in a day, works 5 days in a week, has 16,days vacation in a year and
spends 15 working days a month in the office. Total 365 days in any Required:
(a) Determine an equitable rate of re-imbursement,
(b) Number of kilometers that have to be traveled per day to break-even at the current rate of
reimbursement.
Solution:
Total days in a year =365
Less : Non- Working days (52 x2) =104
Working days 261
Less: Vacation days 16
Office stay (days) (15x12) 180
Days on traveling work 65
No. of kilometers =65 x 192 = 12,480
Computation of travel cost per km. Cost
Total Per km.
(A) Fixed Charges
Depreciation [(1,08,000 - 60,000)/3] 16,000
Insurance 4,000
Total standing charges 20,000 1.6026
(B) Variable expenses
120 312 0.0250
Oil change ( x 12,480)
4,800
1,800 2,340 0.1875
Maintenance ( x 12,480)
9, 600
Petrol (5/8 x 12,480) 7,800 0.6250
Total running expenses 10,452 0.8375
Total cost [ (A) + (B) ] 30,452 2.44
(a) Equitable rate of re-imbursement. = Rs. 2.44 per km.
(b) Current re-imbursement rate. = Rs. 1.80 per km.
Assume, X kilometers. Per annum leads to break- even, i.e., cost per km. computed at that level is equal to
current re-imbursement rate of Rs. 1.80 per km.
Running Cost  Standing Cost
Hence, = Cost per kilometers
Total kilometers
0.8375X  20, 000
= Rs. 1.80;
X
Solving, we get X - 20,780 km
Hence, in order to break-even at current re-imbursement rate, no. of kilometers to be traveled per day =
20,780/65 = 320 kilometers

Question9.2 ACME Company is considering the proposals for conveyance facilities for its sales
staff, who normally travels on an average 20,000 kilometres per annum locally. The proposals
are as follows:
I. Purchase and maintain own fleet of cars. Average cost of a car is Rs. 2.50 lakhs. Petrol
consumption is @ 12 kms/litre. Each has a resale value of Rs. 50,000 at the end of five
years.
II. Allow the executives to use their own car and reimburse expenses @ Rs. 5 per km and
insurance primia.
 7.25
III. Hire cars from outside agency for Rs. 30,000 per year per car. The company shall also bear
the cost of petrol (Rs. 3.75 per kms), taxes and tyres etc.
Following cost data are available for consideration:
(i) Petrol – Rs. 45 per litre.
(ii) Repairs and maintenance - @ 50 paisa per km
(iii) Insurance – Rs. 4,800 per year per car.
(iv) Taxes – Rs. 24,00 per year per car.
(v) Tyres - @ 40 paisa per km.
(vi) Driver’s wages and bonus Rs. 30,000 per annum per car.
Which of the proposals is acceptable? (5+3=8 Marks)
Ans:- Proposal II should be accepted as per kilometer is minimum. (Rs. 5.24)

10. OPERATING INCOME FOR FLIGHT

Question10.1 In order to develop tourism, ABCL airline has been given permit to operate three
flights in a week between X and Y cities (both side). The airline operates a single aircraft of 160 seats
capacity. The normal occupancy is estimated at 60% through out the year of 52 weeks. The one way fare is
Rs. 7,200. The cost of operation of flights are:
Fuel cost (variable) Rs. 96,000 per flight
Food served on board on non-chargeable basis Rs. 125 per passenger
Commission 5% of fare applicable for all booking
Fixed cost:
Aircraft lease Rs. 3,50,000 per flight
Landing charges Rs. 72,000 per flight
Required:
(i) Calculate the net operating income per flight.
(ii) The airline expects that its occupancy will increase to 108 passengers per flight
If the fare is reduced to Rs. 6,720. Advise whether this proposal should be implemented or not.
Solution:
No. of Passengers 160x60/100 = 96 Rs. Rs.
(i) Fare collection (96 x 7,200) 6,91,200
Less: Variable costs: Fuel cost (96,000)
Food (96 x125) (12,000)
Commission 5% (34 560)
Total variable Costs (1,42,560)
Contribution per flight 5 48,640
Less: Fixed costs: Lease (3,50,000)
Crew (72,000) (4,22,000)
Net income per flight 1,26640
(ii) Fare collection (108 x 6,720) 7,25,760
Less: Variable costs: Fuel (96,000)
Food (108x125) (13,500)
Commission @ 5% (36,288) (1,45,788)
Contribution per flight 5,79,972

Question10.2 In order to develop tourism, Reliable Airlines has been given permit to operate three
flights to and fro in a week between station A and B. The airline operates a single aircraft of 160 seats
capacity. The normal occupancy is estimated at 60% throughout the year. The one way fare is Rs.7,000.
The costs of operation of flights are:
(1) Variable Cost
(a) Food Rs. 130 per passenger (non-chargeable)
(b) Commission 5% of fare.
(2) Fixed Cost
(a) Aircraft lease Rs.3,50,000 per flight.
 7.26
(b) Crew payment Rs.72,000 per flight
(c) Fuel Rs.95,000 per flight.
Required:
(i) Calculate net operating income per flight.
(ii) It is believed that the occupancy will increase to 108 passengers per flight if the fare is
reduced to Rs.6,720. Advise whether this proposal should be implemented,
(iii) A travel agency proposes to charter the aircraft by paying lump sum of Rs.5,00,000 to the
Reliable Airlines for one flight. It is also agreed that the expenditure of fuel and food will be borne by the
travel agency. Is this offer acceptable?
Solution: (i) Computation of Net Income per flight (at present)
Fare collection per flight
(Rs 7,000 per passenger) x (60% of 160 = 96 passengers) = Rs. 6,72,000
Less: Variable Cost per flight
Food (130x96) (Rs. 12,480)
Commission (5% of 6,72,000) (Rs.33,600) = (Rs. 46,080)
Contribution per flight = Rs. 6,25,920
Less: Fixed Cost per flight
(1) Lease (3,50,000)
(2) Crew payment (72,000)
(3) Fuel (95,000) = (5,17,000)
Net income per flight 1,08,920
(ii) Computation of Net Income per flight (with reduced fare and higher occupancy)
Fare collection per flight Rs.
7,25,760
(Rs.6,720 per passengers x 108 passengers)
Less: Variable Cost per flight
Food (130 x 108) (14,040)
Commission (5% of 7,25,760) (36,288) (50,328)
Contribution per flight 6,75,432
Less: Fixed cost per flight (unchanged) (5,17,000)
Net Income 1,58,432
Conclusion: The proposal is more profitable by Rs. 49,512.
(iii) Evaluation of the proposal Rs.
Lump sum amount received from travel agency 5,00,000
Less: (1) Lease (3,50,000)
(2) Crew payment (72,000) (4,22,000)
Net Income 78,000
Conclusion: The proposal is not acceptable.

11. CINEMA HALL

Question 11.1 The data given related to “Opera House” a mini theatre for the year ending 31st March 2010 :
No. of employees Salaries
Expenses Amount
1 Manager Rs. 800 p.m.
Electricity and oil 11,655
10 Gate-keepers Rs. 200 p.m. each
Carbon 7,235
2 Operators Rs. 400 p.m. each
Misc. expenditure 5,425
4 Clerks Rs. 250 p.m. each
Advertisement 34,710
Admn. Expense 18,000
Hire of point 1,40,700
The premises are valued at Rs. 6,00,000 and the estimated life is 15 years. Projectors and other
equipments cost Rs. 3,20,000 on which 10% depreciation is to be charged.
 7.27
Daily 3 shows are run throughout the year. The total capacity is 625 seats which is divided into three
classes as follows :
Emerald circle 250 seats
Diamond 250 seats
Coral 125 seats
Ascertain cost per man-shows assuming that
(i) 20% of the seats remain vacant, and
(ii) Weightage to be given to the three classes in the ratio 1:2:3
Required : Determine the rates for each class if the management expects 30% return on gross proceeds.
Ignore entertainment taxes.
Answer
Operating Cost Sheet Rs.
Fixed costs :
Salaries [800 × 12] 9,600
Gate-keepers [10 × 200 × 12] 24,000
Operators [2 × 400 × 12] 9,600
Clerks [4 × 250 ×12] 12,000
Administration expenses 18,000
Depreciation :
Premises [Rs. 6,00,000/15] 40,000
Projections and equipment [3,20,000 × 10%] 32,000
Total fixed costs 1,45,200
Variable costs :
Electricity and oil 11,655
Carbon 7,235
Miscellaneous expenses 5,425
Advertisements 34,710
Hire of point 1,40,700
Total variable cost 1,99,725
Total costs 3,44,925
Add : 30% return on gross proceeds [Or 3/7 of cost] 1,47,825
Gross proceeds 4,92,750
Total man-shows (refer WN) 9,85,500
Cost per man-show Rs. 0.50

Rate for each class :

Emerald circle cost per man-show × weightage i.e. 0.50 × 1 = Re. 0.50
Diamond circle cost per man-show × weightage i.e. 0.50 × 2 = Rs. 1.00
Coral circle cost per man-show × weightage i.e. 0.5 × 3 = Rs. 1.50
Working note :
Computation of man-shows with weightage (i.e. express alls eats in terms of public)
Emerald circle = 250 × 1 = 250 seats
Diamond circle = 250 × 2 = 500 seats
Coral circle = 125 × 3 = 375 seats
1,125 seats

No. of shows : 3
Total weighted seats [1,125 × 3] = 3,375 seats
Less : 20% vacant seats = 675 seats
2,700 seats Man-shows per annum [2,700 × 365] = 9,85,500

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