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Introduction to Cost Accounting

After passing your senior secondary examination, if you set up a small

manufacturing unit, say manufacturing of packing boxes, a problem will

arise what price of each box you should quote to the buyer. Many factors

are considered while fixing the price of a product/item such as competitors

price etc. One of the basic factors is the cost of its production. Cost is

essential not only to fix price but also to ascertain the margin of profit.

Knowledge of the cost determination is also necessary to keep a check on

the cost of product/control on wastages, etc. The accounting used to studythe various aspects of cost is known as cost accounting. In this lesson, you

will learn about meaning, importance, limitations etc. of cost accounting.

Costing includes the techniques and processes of ascertaining costs. The

Technique refers to principles which are applied for ascertaining costs of

products, jobs, processes and services. The `process refers to day to day

routine of determining costs within the method of costing adopted by a

business enterprise.Costing involves the classifying, recording and appropriate allocation of

expenditure for the determination of costs of products or services; the

relation of these costs to sales value; and the ascertainment of profitability.

Objectives

After studying this lesson, you will be able to:

state the meaning and scope of cost accounting; explain the objectives of cost accounting;

differentiate between cost accounting and financial accounting;

state importance of cost accounting;

explain limitations of cost accounting.

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Introduction to Service Costing

Unit costing is the method of costing used when the cost units are identical.

Identical cost units should have identical costs and this concept of equality

of costs is the basic feature of unit costing.

Service or operating cost is the cost of providing services. Service costing is

the term applied to describe the system used to find the cost of performing

a service such as transport, gas or electricity. Service costs are particularly

suitable for the costing of road and rail transport services an they are also

utilized by electricity undertaking, hospitals, canteen, boiler house, etc. the

method of costing is different from that used in connection withproduction, and the difference lies chiefly in the manner of assembling the

cost data and finally in its allocation to cost units.

Introduction to Transport Costing

In transport undertakings most of the statistical data required for cost finding

and cost control purposes are obtained from Daily Log Report.

All repairing and maintenance work are recorded on repair tickets and are then

coasted.

In order to prepare a Transport Cost Sheet for a transport undertaking the

costs may be subdivided as under:-

a) Wages and running costs:- These include cost of petrol, oil, grease, wages

of assistants and drivers, etc.

b) Maintenance charges:- These include repairs and overhauling of vehicles,garage charges, tyres, etc.

c) Fixed charges:- These fixed expenses include insurance, license,

depreciation, etc.

The statistical data regarding costs, maintenance and performance are helpful

in

preparing a performance in respect of each vehicle. In order to compare the

operating efficiency for each period, the total costs thus arrived at are divided

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by the bases such as number of hours or days, number of kilometers run,

number of commercial ton-kilometers, etc. Costs per unit thus obtained are

compared with the past result. A monthly Vehicle Cost Sheet and PerformanceStatement are generally used in many transport undertakings.

Cost control is always possible by means of comparison of actual performance

with the budgeted performance. Various control measures, viz., securing the

optimum use of vehicles, regular maintenance as a planned operation,

avoidance of loading and unloading delays prevention of overlapping and

duplicated journeys, planned replacement of vehicles, etc., may be instituted.

Need of Transport Costing

In todays challenging and ever changing business environment, it is important

that managers have valid and reliable information to make operational and

strategic decisions regarding their organizations. In many cases, the

information required to make these decisions is cost- related. Cost allocation

models, or cost models, are tools that help managers gain insight into an

organizations cost structure, which can be vital to informed decision-making.

For example, cost models provide organizations with a historical snapshots

of the cost of providing products or services over a specified time period.

Organization can use such information to conduct profitability analyses,

develop operating budgets, and project costs for future business undertakings,

such as offering new products or services, changing sourcing strategies, or

expanding operations. Information from a cost model can also be used to

identify opportunities for cost savings and to improve operational efficiencies.

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Purpose & Scope of Transport Costing

The purpose of this evaluation was to determine whether the bus costallocation model used by regional transportations district provides valid and

reliable cost information for use in decision making. The district uses the bus

cost model, as well as analyses performed using the models outputs, to

evaluate the cost effectiveness of services provided and also to support

decision makings in many areas of the districts operations, including the

privatization of bus services and long term planning.

IntroductIon About beSt

The Bombay Tramway Company Limited was formally set up in 1873. The

Mumbai Municipality was given the right to buy up the concern after the first

25 years or after every period of 7 years thereafter. After this contract was

entered into between the Bombay Tramway Company and the Municipality,

the Government of Mumbai enacted the Bombay Tramways Act, 1874, under

which the Company was licenced to run a tramway service in the city. The

tram-cars were of two kinds-those drawn by one horse and those drawn by

two. In 1905, a newly formed concern, The Bombay Electric Supply &

Tramways Company Limited bought the Bombay Tramway Company and the

first electrically operated tram-car appeared on Mumbais roads in 1907.

Mumbai saw its first bus run on 15th July, 1926. The people of Mumbai

received the bus with enthusiasm, but it took quite sometime before this

means of conveyance really established itself. For several years, it was looked

upon as transport for the upper middle classes. Those were the days when the

tram was the poor mans transport, carried one all the way from Sassoon Dock

to Dadar for a mere anna and a half, that was nine paise. The bus fare for the

same journey was four annas, that is 25 paise.

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The city of Mumbai has grown from a small trading center 50 years ago to be

rightly called the first commercial capital of India. In almost all spheres of

human activity. Mumbai has so many firsts to its credit. Likewise the Brihan

Mumbai Electric Supply & Transport Undertaking, popularly known as BEST

has scored many firsts in the country's life and established many records.

The intricacies of Mumbais transport system can easily baffle any new comer

from the countryside. To use a figure of speech, the city inhales and exhales

through the BEST bus services. The changeover from horsedriven trams to

buses has been spectacular.

When the Corporation took over the Company in 1947, there were 242 buses

in operation on 23 routes and these buses carried 2.38 lakh passengers per

day. At present, there are 3380 buses carrying 45 lakhs passengers daily on 335

routes. Special transport arrangements are made and extra buses under

various Action Plans are operated during the year on various social/ religious

occasions. The Undertakings also pays special attention to operate extra buses

to clear the stranded passenger traffic on account of dislocation of Railways,heavy rains and similar such events. The Undertaking also operates extra buses

on Saturdays, Sundays and Holidays to clear the excursion traffic at various

picnic points. The undertaking has been endeavouring to ease the journey of

lady passengers, particularly working women by introducing Ladies First buses

at various points where the ladies are given priority while boarding the bus at

the starting point.

Faster clearance of traffic in the megapolis of Mumbai with less number of

vehicles has been receiving attention for sometime. It is with this background

that the Undertaking has introduced Vestibule buses as a part of its fleet on

the eve of Golden Jubilee. Since these buses carry about 110 passengers each,

they clear the passenger traffic faster, particularly during the peak hours.

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Facilities Provided

BEST believes that it has a social obligation towards the city where it has

grown. As such it is felt essential to provide concession to certain sections

of society. A few schemes are listed below.

Free Travel Facility:Presently, the BEST provides free travel facility to the

freedom fighters. One person accompanying the freedom fighter is also

permitted to travel free. Municipal Councilors and Non-Councilor

Members of the BEST Committee are also permitted to travel free on BESTbuses. Adhoc Members of Legislative Assembly and Legislative Council,

accompanied by his wife and Female Members accompanied by any one

viz. husband, son, daughter, father, mother, brother or sister are allowed

to travel free on BEST buses. Police personnel are allowed to travel free on

BEST buses against an ad-hoc payment of compensation towards free

travel facility by the Government of Maharashtra. This facility of free

travel however is not available on Luxury and Air-Conditioned services.

Concessional Fare:Children below 12 years of age are chargedconcessional fare. Student studying upto Higher Secondary and upto the

age of 22 years are charged concessional fare. Persons who are 60 % and

above, permanently Orthopaedically handicapped are charged

concessional fare. Blind persons are charged a flat fare of Re.1/- per

journey. Concessional fare facility is not available on Luxury and Air-

Conditioned Services.

Reservation of Seats:The BEST has reserved 3 seats for handicapped

person , 2 seats for Senior Citizens and 6 seats for lady passengers in the

Single Decker buses. In the Double Decker buses it has reserved 3 seats

each for lady passengers and handicapped persons and 2 seats for Senior

Citizens.

Front Door Entry:The BEST have permitted physically and mentally

handicapped persons, senior citizens, and expectant mothers to board the

bus from the front door except at starting point.

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Passenger Refund Claims:Incase the conductor does not have enoughchange to return the balance of the passenger, he writes on the back of

the ticket the amount of balance due and authenticates the same. Such a

ticket is treated as a receipt by the BEST. The passenger can claim the

balance amount from Ticket & Cash Department, head office at Wadala

after producing the ticket.

Disaster Management:In the event of disruption of rail services the BEST

operates additional buses in the area of disruption. Timely actions are

taken with the help of our communication system.

Bus no : 19 Ltd

MANTRALAYA SHIVAJI NAGAR DEPOT

The total distance between mantralaya and Shivaji nagar depot is 24 km.

The bus takes 5 round trips daily & the bus works from Monday to

Saturday in a week.

The bus takes approximately 1hour to cover a one way distance.

The bus halts at depot for around 30mins & the same time is taken for

whole returning.

So the total time taken to complete one round trip is 2.5hrs

approximately.The bus makes 5 round trips so the bus runs 12.5hrs13hrs in one day.

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MANTRALYA

HUTATMA CHOWK

V.T / MUMBAI CST

BYCULLA STATION (E)

JIJAMATA UDHYAN

LALBAUG

PAREL

DADAR T.T

GANDHI MARKET

SION

CHEMBUR NAGAR

ASHOK NAGAR

SHIVAJI NAGAR DEPOT

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CNG Consumption

The average consumption of CNG is 25 per km. the cost of CNG is Rs 30. Cost of CNG in the year is

= Total km run X Rate per km

Average consumption

= 74880 X 30

25

= Rs 89856.

From past two years the rates of CNG have been increasing on a very

speedy way and hence the cost of tickets have also increased.

Early minimum fare was Rs 3.15 and now it is Rs 4.0.

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Cost Per Km = Total Operating Cost

No of Km Run

Cost Per Km = 295054

74880

= 3.94

Benefit of Transport Costing

This guidebook shows that transport facilities and activities impose manyexternal costs; that is, costs not borne directly by users, including traffic

congestion and crash risk imposed on other road users, roadway and parking

facility costs not funded through user fees, and pollution emissions. People

sometimes argue that external benefits offset these external costs. For

example, The Highway Users Federation, the International Road Union, the

Deutsche Strassenliga (a German freight organization), and the German Club of

Automobilists have published reports arguing that driving provides significant

external benefits. Supposed benefits include improved personal mobility,

improved economic productivity, and general regional economic development.

These studies have been criticized for failing to distinguish between internal

and external

benefits, counting economic transfers as benefits, and non-marginal

analysis.11 A 1982 USDOT study concluded, the preponderance of expert

opinion probably lies on the sideof saying that there are no external benefits of

highway consumption beyond the benefitsto the users Other studies reach

similar conclusions.An Office of Technology Assessment report also concludes

that there are no significant marginal external benefits of transportation.

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Conclusion

The Reason of this evaluation was to determine whether the bus cost

allocation model used by regional transportations district provides valid and

reliable cost information for use in decision making. The district uses the bus

cost model, as well as analyses performed using the models outputs, to

evaluate the cost effectiveness of services provided and also to support

decision makings in many areas of the districts operations, including the

privatization of bus services and long term planning.

Cost models should use the best available cost drivers. Cost drivers establish

the basic upon which costs are allocated and , therefore, are fundamental to

any cost model. The best available cost driver is one of that most closely

approximates the way the cost is consumed (i.e, what factors drive costs)

and for which source data are available. For example , as discussed previously ,

the Districts total cost for bus diesel fuel is largely a function of how many

miles the buses are driven.

Overall, the inaccuracies , inconsistencies , and other errors we identified

within the Districts bus cost models are rocted in a lack of adherence to some

core principles in cost model design and execution. These include ensuring

that valid and complete source data are used, cost drivers are appropriate and

are best available, and proactive steps taken to validate the models output.

The Districts needs to make a number of Improvements to ensure accuracy

and reliability of the cost information the cost model produces .

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Webliography

www.bestundertaking.com

www.costaccounting/operating-transpot.com

Bibliography

Cost AccountingTY.Bcom (Accounting & Finance )

Ainapure Ainapure

Cost Accounting Standard

By ICWAI

http://www.bestundertaking.com/http://www.costaccounting/operating-transpot.comhttp://www.costaccounting/operating-transpot.comhttp://www.costaccounting/operating-transpot.comhttp://www.bestundertaking.com/