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Service costing
Service costing
Question 1.
What do you understand by Service costing? How are composite units computed? [CA Inter Nov 2009, Nov 2012, 4 Marks]
Answer:
Service Costing:
Internal: The service costing is required for in-house services provided by a service cost centre to other responsibility centres as support services. Examples of support services are Canteen and hospital for staff, Boiler house for supplying steam to production departments, Captive Power generation unit, operation of fleet of vehicles for transport of raw material to factory or distribution of finished goods to the market outlets, IT department services used by other departments, research & development, quality assurance, laboratory etc.
External: When services are offered to outside customers as a profit centre in consonance with organisational objectives as an output like goods or passenger transport service provided by a transporter, hospitality services provided by a hotel, provision of services by financial institutions, insurance and IT companies etc.
In both the situation, all costs incurred are collected, accumulated for a certain period or volume, recorded in the cost accounting system and then expressed in terms of a cost unit of service.
Computation of composite units:
When two measurement units are combined together to know the cost of service or operation, it is called Composite units. Examples of Composite units are Ton- km., Quintal- km, Passenger-km., Patient-day etc.
Composite unit may be computed in two ways.
- Absolute (Weighted Average) basis.
- Commercial (Simple Average) basis.
In both bases of computation of service cost unit, weightage is also given to qualitative factors rather quantitative (which are directly related with variable cost elements) factors alone.
Question 2.
How Service costing is different from the Product costing. [CA Inter MTP]
Answer:
Service costing differs from product costing (such as job or process costing) in the following ways due to some basic and peculiar nature.
- Unlike products, services are intangible and cannot be stored, hence, there is no inventory for the services.
- Use of Composite cost units for cost measurement and to express the volume of outputs.
- Unlike a product manufacturing, employee (labour) cost constitutes a major cost element than material cost.
- Indirect costs like administration overheads are generally have a significant proportion in total cost of a service as unlike manufacturing sector, service sector heavily depends on support services and traceability of costs to a service may not economically feasible.
Question 3.
State the unit of cost for the following industries:
(a) Transport
(b) Power
(c) Hotel
(d) Hospital [CA Inter Nov 2008, 2 Marks]
Answer:
| Industry | Unit of Cost |
| (a) Transport | Passenger – km. (in public transportation) Quintal – km., or Ton – km. (in goods carriage) |
| (b) Power | Kilowatt – hour (kWh) |
| (c) Hotel | Guest Days or Room Days |
| (d) Hospital | Patient per day, room per day or per bed, per operation etc. |
Question 4.
Describe Composite Cost unit as used in Service Costing and discuss the ways of computing it. [CA Inter Nov 2019, 5 Marks]
Answer:
Composite Cost Unit:
When two measurement units are combined together to know the cost of service or operation, it is called composite cost units. For example, a public transportation undertaking would measure the operating cost per passenger per kilometre.
Examples of Composite units are Ton- km., Quintal- km, Passenger-km., Patient-day etc.
Composite unit may be computed in two ways:
(i) Absolute (Weighted Average) basis: It is summation of the products of qualitative and quantitative factors. For example, to calculate absolute Ton-Km for a goods transport is calculated as follows:
Σ (Weight Carried × Distance)1 + (Weight Carried × Distance)2 + ………….. + (Weight Carried × Distance)n
(ii) Commercial (Simple Average) basis: It is the product of average qualitative and total quantitative factors. For example, in case of goods transport, Commercial Ton-Km is arrived at by multiplying total distance km., by average load quantity.
Σ (Distance1 + Distance2 + ………………… + Distancen) × (W1 + W2 + ……. + Wn/n)
In both bases of computation of service cost unit, weightage is also given to qualitative factors rather quantitative (which are directly related with variable cost elements) factors alone.
Question 5.
Distinguish between Absolute ton-kms and Commercial ton-kms. [CA Inter Nov 2006, 2 Marks]
Answer:
Absolute tons-kms are the sum total of tons-kms arrived at by multiplying various distances by respective load quantities carried.
Commercial tons-kms are arrived at by multiplying total distance kms by average load quantity.
Question 6.
What do you understand by Build-Operate-Transfer (BOT) approach in Service Costing? How is the Toll rate computed? [CA Inter July 2021, 5 Marks]
Answer:
Build-Operate-Transfer (BOT): BOT is an option for the government to outsource the public projects to private sectors. With BOT, the private sector designs, finances, constructs and operate the facility and eventually, after specified concession period, the ownership is transferred to government. Therefore, BOT can be seen as a developing technique for infrastructure projects by making them amenable to private sector participation.
Toll rate: Toll rate should have direct relation with the benefits that the road users would gain from its improvement. The benefits to road users are likely to be in terms of fuel savings, improvement in travel time and good riding quality.
No. of Vehicles User fee = Total distance × toll rate per km
Note: User fee will rounded off to nearest multiple of ₹ 5.
Costing of Transport Services
Question 1.
A Mineral is transported from two mines-‘A’ and ‘B’ and unloaded at plots at Railway Station. Mine A is at a distance of 10 kms. and B is at a distance of 15 kms. from railhead plots. A fleet of lorries of 5 tonne carrying capacity is used for the transport of mineral from the mines. Records reveal that the lorries average a speed of 30 kms. per hour, when running and regularly take 10 minutes to unload at the railhead. At mine ‘A’ loading time averages 30 minutes per load while at mine ‘B’ loading time averages 20 minutes per load. Drivers’ wages, depreciation, insurance and taxes are found to cost ₹ 9 per hour operated. Fuel, oil, tyres, repairs and maintenance cost ₹ 1.20 per km.
Draw up a statement, showing the cost per tonne-kilometer of carrying mineral from each mine. [CA Inter Nov. 2000, 8 Marks]
Answer:
Statement showing cost per ton-km of carrying mineral from each time:
Working Notes:
Question 2.
A transport company has a fleet of three trucks of 10 tonnes, capacity each plying in different directions for transport of customers’ goods. The trucks run loaded with goods and return empty. The distance travelled, number of trips made and the load carried per day by each truck are as under:
The analysis of maintenance cost and the total distance travelled during the last two years is as under:
| Year | Total distance travelled | Maintenance Cost (₹) |
| 1 | 1,60,200 | 46,050 |
| 2 | 1,56,700 | 45,175 |
The following are the details of expenses for the year under review:
| Diesel | ₹ 10 per litre. Each litre gives 4 km per litre of diesel on an average. |
| Driver’s salary | ₹ 2,000 per month |
| Licence and taxes | ₹ 5,000 per annum per truck |
| Insurance | ₹ 5,000 per annum for all the three vehicles |
| Purchase Price per truck | ₹ 3,00,000, Life 10 years. Scrap value at the end of life is ₹ 10,000 |
| Oil and sundries | ₹ 25 per 100 km run. |
| General Overhead | ₹ 11,084 per annum |
The vehicles operate 24 days per month on an average.
Required:
(i) Prepare an Annual Cost Statement covering the fleet of three vehicles.
(ii) Calculate the cost per km. run.
(iii) Determine the freight rate per tonne km. to yield a profit of 10% on freight. [CA Inter Nov 2001, 10 Marks]
Answer:
(i) Annual Cost Statement of three vehicles:
| ₹ | |
| Diesel [(1,34,784 k.m. ÷ 4 km) × ₹ 10)] (Refer W.N.I) | 3,36,960 |
| Oil & sundries [(1,34,784 km. ÷ 100 km.) × ₹ 25] | 33,696 |
| Maintenance [(1,34,784 km. × ₹ 0.25) + ₹ 6,000] (Refer W.N.2) | 39,696 |
| Drivers’ salary [(₹ 2,000 × 12 months) × 3 trucks] | 72,00 |
| License and taxes (₹ 5,000 × 3 trucks) | 15,000 |
| Insurance | 5,000 |
| Deprecation [(₹ 2,90,000 ÷ 10 years) × 3 trucks] | 87,000 |
| General overhead | 11,084 |
| Total annual cost | 6,00,436 |
(ii) Cost per km. run:
Cost per kilometer run = Total annual cost of vehicles Total kilometers travelled annually (Refer W.N.I)
= ₹6,00,4361,34,784kms = ₹ 4.4548
(iii) Freight rate per tonne km (to yield a profit of 10% on freight)
Cost per tonner run = Total annual cost of vehicles Total effective tonne kms p.a. (Refer W.N.I)
= ₹6,00,4365,25,312 tonne kms = ₹ 1.143
Freight rate per tonne km. (₹ 1.143 ÷ 0.9) × 1 = ₹ 1.27
Working Notes:
1. Total kilometre travelled and tonnes kilometre (load carried) by three trucks in one year:
Total kilometre travelled by three trucks in one year
(468 km. × 24 days × 12 months) = 1,34,784 kms
Total effective tonnes kilometre of load carried by three trucks during one year
(1,824 tonnes km. × 24 days × 12 months) = 5,25,312 tonne kms
2. Fixed and variable component of maintenance cost:
Variable maintenance cost per km = Difference in maintenance cost Difference in distance travelled
= ₹46,050−₹45,1751,60,200kms−1,56,700kms
= ₹ 0.25
Fixed maintenance cost
= Total maintenance cost-Variable maintenance cost
= ₹ 46,050 – (1,60,200 kms × ₹ 0.25)
= ₹ 6,000
Question 3.
Calculate total passenger kilometres 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. [CA Inter Nov 2007, 2 Marks]
Answer:
Calculation of passenger kilometer:
= 6 buses × 25 days × 8 trips × 2 sides × 20 k.m. × 40 passengers × 80%
= 15,36,000 passenger km
Question 4.
A transport company has been given a 40 kilometre long route to run 5 buses. The cost of each bus is ₹ 6,50,000. The buses will make 3 round trips per day carrying on average 80% passengers of their seating capacity. The seating capacity of each bus is 40 passengers. The buses will run on an average 25 days in a month. The other information for the year 2020-21 are given below:
| Garage rent | ₹ 4,000 per month |
| Annual repairs and maintenance | ₹ 22,500 each bus |
| Salaries of 5 drivers | ₹ 3,000 each per month |
| Wages of 5 conductors | ₹ 1,200 each per month |
| Manager’s salary | ₹ 7,500 per month |
| Road tax, permit fee, etc. | ₹ 5,000 for a quarter |
| Office expenses | ₹ 2,000 per month |
| Cost of diesel per litre | ₹ 33 |
| Kilometre run per litre for each bus | 6 kilometres |
| Annual depreciation | 15% of cost |
| Annual Insurance | 3% of cost |
You are required to calculate the bus fare to be charged from each passenger per kilometre, if the company wants to earn profits of 331/3 per cent on taking (total receipts from passengers). [CA Inter Nov. 2016, May 2010, 8 Marks]
Answer:
Operating Cost Sheet for the year 2020-21
Working Notes:
1. Total Kilometres to be run during the year 2013-14
= 40 km. × 2 sides × 3 trips × 25 days × 12 months × 5 buses
= 3,60,000 Kilometres
2. Total passenger Kilometres
= 3,60,000 km. × 40 passengers × 80%
= 1,15,20,000 Passenger- km.
Question 5.
The following information relates to a bus operator:
| Cost of the bus | ₹ 18,00,000 |
| Insurance charges | 3% p.a. |
| Manager cum accountant’s salary | ₹ 8,000 p.m. |
| Annual Tax | ₹ 50,000 |
| Garage Rent | ₹ 2,500 p.m. |
| Annual repair & maintenance | ₹ 1,50,000 |
| Expected life of the bus | 15 years |
| Scrap value at the end of 15 years | ₹ 1,20,000 |
| Driver’s salary | ₹ 15,000 p.m. |
| Conductor’s salary | ₹ 12,000 p.m. |
| Stationary | ₹ 500 p.m. |
| Engine oil, lubricants (for 1200 km.) | ₹ 2,500 |
| Diesel and oil (for 10 km.) | ₹ 52 |
| Commission to driver and conductor (shared equally) | 10% of collections |
| Route distance | 20 km long |
The bus will make 3 round trips for carrying on the average 40 passengers in each trip. Assume 15% profit on collections. The bus will work on the average 25 days in a month.
Calculate fare for passenger-km [CA Inter Nov 2013, 8 Marks]
Answer:
Total distance = 3 trips × 2 × 20 k.m. × 25 days = 3,000 k.m.
Total Passenger-km. = 3,000 km × 40 passengers = 1,20,000 Passenger-k.m.
Statement showing the Operating Cost per Passenger-km.
Working Notes:
Total costs before commission on collection and net profit is ₹ 90,350.
Now, the commission on collection to driver and conductor is 10% of collection and Profit is 15% of collection.
Therefore, total cost of ₹ 90,350 is 75% (i.e. 100% – 10% – 15%) of total collection.
So, total collection will be ₹ 1,20,466,67 (₹ 90,350 ÷ 75%).
Therefore, total commission on collection = 10% × ₹ 1,20,466.67 = ₹ 12,046.67
Driver’s share= 50% × ₹ 12,046.67 = 6,023.34
Conductor’s share = 50% × ₹ 12,046.67 = 6,023.33
Profit on collection = ₹ 1,20,466.67 × 15% = ₹ 18,070
Fare per Passenger-km. = Total Collection Total Passenger −km.
= ₹1,20,466.671,20,000
= ₹ 1.004 (approx)
Question 6.
A mini-bus, having a capacity oi 32 passengers, Operates between two places – ‘A’ and ‘B\ The distance between the place ‘A’ and place ‘B’ is 30
km. The bus makes 10 round trips in a day for 25 days in a month. On an average, the occupancy ratio is 70% and is expected throughout the year.
The details of other expenses are
| ₹ | |
| Insurance | 15,600 per annum |
| Garage Rent | 2,400 per quarter |
| Road Tax | 5,000 per annum |
| Repairs | 4,800 per quarter |
| Salary of operating staff | 7,200 per month |
| Tyres and Tubes | 3,600 per quarter |
| Diesel: (one litre is consumed for every 5 km) | 13 per litre |
| Oil and Sundries | 22 per 100 km run |
| Depreciation | 68,000 per annum |
Passenger tax @ 22% on total taking is to be levied and bus operator requires a profit of 25% on total taking.
Prepare operating cost statement on the annual basis and find out the cost per passenger kilometer and one way fare per passenger [CA Inter May 2015, 8 Marks]
Answer:
Operating Cost Statement
Calculation of Cost per passenger kilometre and one way fare per passenger:
Cost per Passenger-km. = Total Operating Cost Total Passenger −km.
= ₹7,25,80040,32,000
= 0.18
One way fare per Passenger = Total Takings Total Passenger −km. × 30 km
= ₹13,69,43440,32,000 × 30 km
= ₹ 10.20
Working Notes:
1. Let total taking be X.
Total takings = Total operating cost + Passenger tax + Profit
So, X = ₹ 7,25,800 + 0.22 X + 0.25X
or, X – 0.47 X = ₹ 7,25,800
X = ₹ 13,69,434
Therefore, Passenger tax will be ₹ 3,01,275 (i.e. ₹ 13,69,434 × 0.22) and profit will be ₹ 3,42,359 (i.e. ₹ 13,69,434 × 0.25).
2. Total Kilometres to be run during the year
= 30 km. × 2 sides × 10 trips × 25 days × 12 months
= 1,80,000 Kilometres
3. Total passenger Kilometres
= 1,80,000 km. × 32 passengers × 70%
= 40,32,000 Passenger- km
Question 7.
M/s XY Travels has been given a 25 km. long route to run an air- conditioned Mini Bus. The cost of bus is ₹ 20,00,000. It has been insured @3% premium per annum while annual road tax amounts to ₹ 36,000. Annual repairs will be ₹ 50,000 and the bus is likely to last for 5 years. The driver’s salary will be ₹ 2,40,000 per annum and the conductor’s salary will be ₹ 1,80,000 per annum in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Office and administration overheads will be ₹ 18,000 per annum. Diesel and oil will be ₹ 1,500 per 100 km. The bus will make 4 round trips carrying on an average 40 passengers on each trip.
Assuming 25% profit on takings and considering that the bus will run on an average 25 days in a month, you are required to:
(i) prepare operating cost sheet (for the month)
(it) Calculate fare to be charged per passenger km. [CA litter Nov. 20/8. 10 Marks]
Answer:
Total distance – 4 trips × 2 × 25 k.m. × 25 days × 12 months = 60,000 k.m.
Total Passenger-km. = 60,000 kms × 40 passengers = 24,00,000 passenger-k.m.
(i) Statement showing the Operating Cost per Passenger-km.
(ii) Fare per passenger-k.m. = Total Takings Total Passenger −km.
= ₹33,60,00024,00,000
= ₹ 1.40
Working Notes:
Total costs before commission and profit is ₹ 21,84,000.
Now, the commission is 10% of takings and Profit is 25% of takings.
Therefore, the total cost of ₹ 21,84,000is 65% (i.e. 100% -10% – 25%) of total takings.
So, total takings will be ₹ 33,60,000 (₹ 21,84,000 ÷ 65%).
Therefore, total commission on takings = 10% × ₹ 33,60,000 = ₹ 3,36,000
Driver’s share= 50% × ₹ 3,36,000,= 1,68,000
Conductor’s share = 50% × ₹ 3,36,000 = 1,68,000
Profit on collection = ₹ 33,60,000 × 25% = ₹ 8,40,000
Passenger km = 60,000 × 40 passenger = 24,00,000.
Question 8.
X Ltd. distributes its goods to a regional dealer using single lorry. The dealer premises are 40 kms away by road. The capacity of the lorry is 10 tonnes. The lorry makes the journey twice a day fully loaded on the outward journey and empty on return journey. The following information is available:
| Diesel Consumption | 8 km per litre |
| Diesel Cost | ₹ 60 per litre |
| Engine Oil | ₹ 200 per week |
| Driver’s Wages (fixed) | ₹ 2500 per week |
| Repairs Garage Rent | ₹ 600 per week |
| Cost of Lorry (excluding cost of tyres) | ₹ 800 per week |
| Life of Lorry | ₹ 9,50,000 |
| Insurance | ₹ 18,200 per annum |
| Cost of Tyres | ₹ 52,500 |
| Life of Tyres | 25,000 kms |
| Estimated sale value of the lorry at the end of its life is | ₹ 1,50,000 |
| Vehicle License Cost | ₹ 7,800 per annum |
| Other Overhead Cost | ₹ 41,600 per annum |
The lorry operates on a 5 day week.
Required:
(i) A statement to show the total cost of operating the vehicle for the four week period analysed into Running cost and Fixed cost.
(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in a year) [CA Inter May 2019, 10 Marks]
Answer:
Total distance = 2 trips × 2 × 40 k.m. × 5 days ×4 weeks = 3,200 k.m.
Total tonne-km. = 2 trips × 40 k.m. × 5 days × 4 weeks × 10 tonnes = 16,000 tonne-kms
Note: The lorry was fully loaded only on outward journey and it is empty on return journey.
(i) Statement showing Operating Cost of vehicle for the 4 week period
(ii) Calculation of vehicle operating cost:
Operating cost per km = Total Cost Total Kilometers
= ₹68,3203,200 = ₹ 21.35
Operating cost per Tonne-km = Total Cost Total Tonne-kms
= ₹68,32016,00 = ₹ 21.35
Question 9.
SEZ Ltd. built a 120 km. long highway and now operates a toll road to collect tolls. The company has invested ? 900 crore to build the road and has estimated that a total of 120 crore vehicles will be using the highway during the 10 years toll collection tenure. The other costs for the month of “June 2020” are as follows:
(i) Salary:
- Collection personnel (3 shifts and 5 persons per shift) ₹ 200 per day per person.
- Supervisor (3 shifts and 2 persons per shift) – ₹ 350 per day per person.
- Security personnel (2 shifts and 2 persons per shift) – ₹ 200 per day per person
- Toil Booth Manage; (3 shifts anti 1 person per shift) – ₹ 500 per day per person,
(ii) Electricity – ₹ 1,50,000
(iii) Telephone – ₹ 1,00,000
(iv) Maintenance cost – ₹ 50 lakhs
(v) The company needs 30% profit over total cost.
Required:
(1) Calculate cost per kilometre.
(2) Calculate the toll rate per vehicle. [CA Inter Nov 2G20, 10 Marks]
Answer:
Statement of Cost for the month June, 2020
1. Calculation of cost per kilometer:
= Total Cost Total Km = ₹8,04,72,000120kms = ₹ 6,70,600
2. Calculation of toll rate per vehicle:
= Total Cost +25% profit Vehicles per month = ₹8,04,72,000+₹2,41,41,6001,00,00,000 vehicles = ₹ 10.46
Working:
Vehicles per month = Total estimated vehicles 10 years ÷ 12 months
= 120 crores 10 years ÷ 12 months = 1 crore vehicles
Question 10.
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 travelled 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 2020-21 are as under:
| Driver’s salary payable for all the 12 in months. | ₹ 5,000 per month per driver. |
| Cleaner’s salary payable for all the 12 months (one cleaner has been employed for every five buses). |
₹ 3,000 per month per cleaner |
| Licence Fees, Taxes etc. | ₹ 2,300 per bus per annum |
| Insurance Premium | ₹ 15,600 per bus per annum |
| Repairs and Maintenance | ₹ 16,400 per bus per annum |
| Purchase price of the bus | ₹ 16,50,000 each |
| Life of the bus | 16 each |
| Scrap value | ₹ 1,50,000 |
| Diesel Cost | ₹ 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 the whole year. The school follows differential bus fees based on distance travelled as under:
Students picked up and dropped within the range of distance from the school-Bus fee-Percentage of students availing this facility
| 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 buses 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
(c) Students coming from a distance of upto 16 km. from the school. [CA Inter May 2004, 10 Marks]
Answer:
(i) Statement of EPS Public School showing the expenses of operating a single bus and the fleet of 25 buses for a year
(ii) Average cost per student per month in respect of students coming from a distance of:
| (a) 4 km. from the school [₹ 2,52,082/(354 students × 12 months)] (Refer W.N.2) | ₹ 59.34 |
| (b) 8 km. from the school (₹ 59.34 × 2) | ₹ 118.68 |
| (c) 16 km. from the school (₹ 59.34 × 4) | ₹ 237.36 |
Working Notes:
1. Calculation of diesel cost per bus:
| No. of trips made by a bus each day | 4 |
| Distance travelled in one trip both ways (16 km. × 2 trips) | 32 km. |
| Distance travelled per day by a bus (32 km. × 4 shifts) | 128 km. |
| Distance travelled during a month (128 km. × 24 days) | 3,072 km. |
| Distance travelled per year (3,072 km. × 10 months) | 30,720 km. |
| No. of litres of diesel required per bus per year (30,720 km. ÷ 10 km.) | 3,072 litres |
| Cost of diesel per bus per year (3,072 litres × ₹ 18.50) | ₹ 56,832 |
2. Calculation of number of students per bus:
| Bus capacity of 2 trips (60 students × 2 trips) | 120 students |
| 1/4th fare students (15% × 120 students) | 18 students |
| ½ fare 30% students (equivalent to 1/4th fare students) | 72 students |
| Full fare 5596 students (equivalent to 1/4th fare students) | 264 students |
| Total 1/4th fare students | 354 students |
Question 11.
Paras Travels provides mini buses to an IT company for carrying its employees from home to office and dropping back after office hours. It runs a fleet of 8 mini buses for this purpose. The buses are parked in a garage adjoining the company’s premises. Company is operating in two shifts (one shift in the morning and one shift in the afternoon). The distance travelled by each mini bus one way is 30 kms. The company works for 20 days in a month. The seating capacity of each mini bus is 30 persons. The seating capacity is normally 80% occupied during the year. The details of expenses incurred for a year are as under:
| Driver’s salary | ₹ 20,000 per driver p.m. |
| Lady attendant’s salary (mandatorily required for each mini bus) | ₹ 10,000 per attendant p.m. |
| Cleaner’s salary (One cleaner for 2 mini buses) | ₹ 15,000 per cleaner p.m. |
| Diesel (Avg. 8 kms per litre) | ₹ 80 per litre |
| Insurance charges (per annum) | 2% of Purchase Price |
| License fees and taxes | ₹ 5,080 per mini bus p.m. |
| Garage rent paid | ₹ 24,000 p.m. |
| Repair & maintenance including engine oil and lubricants (for every 5,760 kms) | ₹ 2,856 per mini bus |
| Purchase Price of mini bus | ₹ 15,00,000 each |
| Residual life of mini bus | 8 Years |
| Scrap value per mini bus at the end of residual life | ₹ 3,00,000 |
Paras Travels charges two types of fare from the employees. Employees coming from a distance of beyond 15 kms away from the office are charged double the fare which is charged from employees coming from a distance of upto 15 kms. away from the office. 50% of employees travelling in each trip are coming from a distance beyond 15 kms. from the office. The charges are to be based on average cost.
You are required to:
(i) Prepare a statement showing expenses of operating a single mini bus for a year.
(ii) Calculate the average cost per employee per month in respect of:
(a) Employees coming from a distance upto 15 kins, from the office.
(b) Employees coming from a distance beyond 15 kms. from the office. [CA Inter Dec. 2021, 10 Marks]
Answer:
(i) Statement showing operating cost for a single Mini-Bus per year
Notes:
1. Total Distance Travelled = 4 trip × 2 shifts × 30 km. × 20 days × 12 months
= 57,600 kms.
2. Garage rent paid i.e. ₹ 24,000 are assumed to be paid for all 8 buses.
(ii) Average cost per employee per month in respect of employees coming from a distance:
| (a) upto 15 kms. from the office [₹ 1,10,960/72 employees] |
₹ 1,541.11 |
| (b) beyond 15 kms. from the office [₹ 1,541.11 × 2] | ₹ 3,082.22 |
Working Note: Calculation of equivalent number of employees:
| Seating capacity of 2 shifts (morning + afternoon) [30 employees × 2 shifts] |
60 employees |
| Occupancy (80%) | 48 employees |
| Half fare employees (50%) | 24 employees |
| Full fare employees (50% but equivalent to half fare employees) [48 employees × 50% × 2) |
48 employees |
| Total half fare employees | 72 employees |
Question 12.
A transport company has 20 vehicles, the capacities are as follows:
| No. of Vehicles | Capacity per vehicle |
| 5 | 9 MT |
| 6 | 12 MT |
| 7 | 15 MT |
| 2 | 20 MT |
The company provides the goods transport service between stations ‘A’ to station ‘B’ Distance between these stations is 100 kilometers. Each vehicle makes one round trip per day on an average. Vehicles are loaded with an average of 90% of capacity at the time of departure from station ‘A’ to station ‘B’ and at the time of return back loaded with 70% of capacity. 10% of vehicles are laid up for repairs every day. The following information is related to the month of August, 2020:
| Salary of Transport Manager | ₹ 60,000 |
| Salary of 30 drivers | ₹ 20,000 each driver |
| Wages of 25 Helpers | ₹ 12,000 each helper |
| Loading and unloading charges | ₹ 850 each trip |
| Consumable stores (depends on running of vehicles) | ₹ 1,35,000 |
| Insurance (Annual) | ₹ 8,40,000 |
| Road Licence (Annual) | ₹ 6,00,000 |
| Cost of Diesel per litre | ₹ 78 |
| Kilometres run per litre each vehicle | 5 Km. |
| Lubricant, Oil etc. | ₹ 1,15,000 |
| Cost of replacement of Tyres, Tubes, other parts etc. (on running basis) | ₹ 4,25,000 |
| Garage rent (Annual) | ₹ 9,00,000 |
| Routine mechanical services | ₹ 3,00,000 |
| Electricity charges (for office, garage and washing station) | ₹ 55,000 |
| Depreciation of vehicles (on time basis) | ₹ 6,00,000 |
There is a workshop attached to transport department which repairs these vehicles and other vehicles also. 40 per cent of transport manager’s salary is debited to the workshop. The transport department has been apportioned ₹ 88,000 by the workshop during the month. During the month operation was for 23 days.
You are required:
(i) Calculate per ton-km operating cost
(ii) Determine the freight to be charged per ton-km, if the company earned a profit of 25 per cent on freight. [CA lute, Nov. 2020. RTP]
Answer:
(i) Operating Cost Sheet for the month of August, 2020
(ii) Calculation of Chargeable Freight
| Cost per ton km. | ₹ 5.32 |
| Add: Profit @ 25% on freight or 33% on | ₹ 1.77 |
| Chargeable freight per ton-km. | ₹ 7.09 |
Working Notes:
1. Wages paid to loading and unloading labours
= Numbers of vehicles available per day × No. of days × trips × wages per trip
= (20 vehicles × 90%) × 25 days × 2 trips × ₹ 850
= 18 × 25 × 2 × 850
= ₹ 7,65,000
2. Cost of Diesel:
Distance covered by each vehicle during August, 2020
= 100 k.m. × 2 × 25 days × 90% = 4,500 km.
Consumption of diesel = 4,500 km×20 vehicles 5 km = 18,000 litres
Cost of diesel = 18,000 litres × ₹ 78 = ₹ 14,04,000.
3. Calculation of total ton-km:
Total Ton-Km. = Total Capacity × ₹ Distance covered by each vehicle × Average Capacity Utilisation ratio.
= [(5 × 9 MT) + (6 × 12 MT) + (7 × 15 MT) + (2 × 20 MT)] × 4,500 km × (70%+90%2)
= (45 + 72 + 105 + 40) × 4,500 km × 80%
= 262 × 4,500 × 80%
= 9,43,200 ton-km
Question 13.
A lorry starts with a load of 24 tonnes of goods from station A. It unloads 10 tonnes at station B and rest of goods at station C. It reaches back directly to station A after getting reloaded with 18 tonnes of goods at station C. The distance between A to B, B to C and then from C to A are 270 kms, 150 kms and 325 kms respectively. Compute ‘Absolute tonnes kms’ and ‘Commercial tonnes-kms’. [CA Inter June, 2009, 2 Marks]
Answer:
Absolute tonnes kms:
= tonnes × km
= 24 tonnes × 270 kms + 14 tonnes × 150 kms
= 14,430 tonnes kms
Commercial tonnes kms:
= Average load × total kms travelled
= [24+14+183] tonnes × 745 kms
= 13,906.67 tonnes km
Question 14.
Harry Transport Service is a Delhi based national goods transport service provider, owning five trucks for this purpose. The cost of running and maintaining these trucks are as follows:
| Diesel cost | ₹15 per km. |
| Engine oil | ₹ 4,200 for every 14,000 km. |
| Repair and maintenance | ₹ 12,000 for every 10,000 km. |
| Driver’s salary | ₹ 20,000 per truck per month |
| Cleaner’s salary | ₹ 7,000 per truck per month |
| Supervision and other general expenses | ₹ 15,000 per month |
| Cost of loading of goods | ₹ 200 per Metric Ton (MT) |
Each truck was purchased for Rs. 20 lakhs with an estimated life of 7,20,000 km. During the next month, it is expecting 6 bookings, the details of which are as follows:
Required:
(i) Calculate the total absolute Ton-km for the next month.
(ii) Calculate the cost per ton-km. [CA Inter MTP]
Answer:
(i) Calculate the total absolute Ton-km for the next month.
Total absolute Ton-km = 1,89,115 ton-km
(ii) Calculation of cost per ton-km:
Question 15.
GTC has a lorry of 6-ton carrying capacity. It operates lorry service from city A to city B for a particular vendor. It charges ₹ 2,400 per ton from city ‘A’ to city ‘B’ and ₹ 2,200 per ton for the return journey from city ‘B’ to city ‘A’. Goods are also delivered to an intermediate city *C’ but no extra charges are billed for unloading goods in-between destination city and no concession in rates is given for reduced load after unloading at intermediate city. Distance between the city ‘A’ to ‘B* is 300 km and distance from city ‘A’ to ‘C’ is 140 km.
In the month of January, the truck made 12 journeys between city ‘A’ and city ‘B’. The details of journeys are as follows:
| Outward journey | No. of journeys | Load (in ton) |
|
‘A’ to ‘B’ ‘X to C’ C’ to ‘B’ |
10 2 2 |
6 6 4 |
| Return journey | No. of journeys | Load (in ton) |
|
B’ to ‘A’ ‘B’ to ‘A’ ‘B’ to ‘C’ ‘C’ to ‘A’ |
5 6 1 1 |
8 6 6 0 |
Annual fixed costs and maintenance charges are ₹ 6,00,000 and ₹ 1,20,900 respectively. Running charges spent during the month of January are ₹ 2,94,400 (includes ₹ 12,400 paid as penalty for overloading).
You are required to:
(i) Calculate the cost as per
(a) Commercial ton-kilometre,
(b) Absolute ton-kilometre
(ii) Calculate Net Profit/ loss for the month of January. [ICAIModule]
Answer:
(i) Calculation of Total Monthly cost for running truck:
(a) Cost per commercial ton-km. = ₹3,42,00044,856 ton-km = ₹ 7.62
(Refer W.N.1)
(b) Cost per absolute ton-km. = ₹3,42,00044,720 ton-km = ₹ 7.65
(Refer W.N.2)
(ii) Calculation of Net Profit/Loss for the month of January:
Working Notes:
1. Calculation of Commercial Ton-km:
2. Calculation of Absolute Ton-km: