CHAPTER 1

OPERATING COSTING

TRANSPORTER
Q.1

(Passenger - Kms.)
From the following information, calculate total Kms and total passenger Kms.
No. of Buses 6;
Days operated in the month 25;
Trips made by each bus 4
Distance of route 20 Kms. (one-way);
Capacity of Bus 40 passengers
Normal travelling 90% of capacity
[24,000 Kms and 8,64,000 passenger Kms]

Q.2

(Tonne-Kms)
A truck starts with a load of 10 tonnes of goods from station P. It unloads 4 tonnes at
station Q and rest at station R. It is reloaded with 8 tonnes of goods at station R and
reaches back directly to station P. The distance between P to Q, Q to R and R to P is
40 Kms, 60 Kms and 80 Kms respectively. Compute (1) Absolute Tonnes-Kms & (2)
Commercial Tonnes- Kms.
[1,400 tonnes Kms and 1,440 tonne Kms]

Q.3

(Vehicles with Different Capacities)

A Transport Company maintains a fleet of vehicles for carrying goods between two
places, particulars of which are as follows:
No, of Vehicles
10
5
20
Capacity (in tonnes each)
2
6
5
Each vehicle makes 5 trips a day covering a distance of 10 Kms. in each trip. On an
average 10% of the vehicles are laid up for repairs daily and 80% of capacity of each
vehicle is actually used. If the company operates 25 days in a month, calculate the
total tonne kilometres per month carried by the company.
[135,000 tonne Kms]

Q.4

(Unit Cost - Basic)

A transport company maintains a fleet of lorries for carrying goods from Delhi to
Panipat, 100 Kms. off. Each lorry, which operates 25 days on an average in a month,
starts every day from Delhi with a load of 4 tonnes and returns from Panipat with a
load of 2 tonnes. Calculate commercial tonne-kms and cost per commercial tonnekm. when the total monthly charges for a lorry are ` 27,000. What rate per tonne
should be charged if it plans to earn profit of 20% on the freightage. [` 2.25/tonne]

Q.5

(Simple Cost Unit)

Mr. Sanjay owns a fleet of taxis and following information is available from him:
Number of taxis
10
Cost of each taxi
` 54,600
Salary to Manager
` 700 p.m.
Salary to Accountant
` 500 p.m.
Salary to Cleaner
` 200 p.m.
Salary to Mechanic
` 400 p.m.
Garage Rent
` 600 p.m.
Annual Tax
` 900 per taxi
Driver's Salary
` 350 per taxi
Annual Repairs
` 1,000 per taxi
Insurance Premium
5% p.a.
Total life of a taxi is about 2,00,000 Kms. A taxi runs 3,000 Kms. in a month and 30%
of this distance is run without any passengers. Petrol consumption is one litre for
every 10 Kms @ ` 4.41 per litre. Oil and sundry expenses are ` 10.50 per 100 Kms
Calculate the cost of running a taxi per effective km.
[` 1.63/Km]
1

Compiled by CA Kapil Budhdev

T.Y.B.A.F./ 5th Sem. / Cost Accounting III / Operating Costing

Q.6

(Simple & Compound Cost Units)

Prakash Automobiles distributes its goods to regional dealer using a single lorry. The
dealer's premises are 40 Kms 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 journey. The lorry operates on a five days in a week. The following
information is available for a Weekly Period
Petrol Consumption 8 Km. per litre
Petrol Cost
` 13 per litre
Oil
` 100 per week
Driver's Wages
` 400 per week
Repairs
` 100 per week
Garage Rent
` 150 per week
Insurance
` 6,500 p.a.
Cost of tyres
` 6,250
Life of tyres
25,000 Kms
Vehicle License Cost
` 1,300 p.a.
Other overheads
` 41,600 p.a.
Cost of lorry
` 4,50,000
Life of lorry
80,000 Kms
Estimated scarp value of lorry ` 50,000
Required:
(A) A statement to show the total cost of operating the vehicle for the four weekly
periods analyzed into running costs and fixed costs.
(B) Calculate vehicle cost per Km and per tonne Km. [` 9/Km & ` 1.80/tonne Km]

Q.7

Union Transport Company supplies the following details in respect of a truck of 5tonne capacity.
Cost of Truck
` 90,000
Estimated Life
10 Years
Repairs and Maintenance
` 500 p.m.
Driver's Wages
` 500 p.m.
Cleaner's Wages
` 250 p.m.
Insurance
` 4,800 p.a.
Tax
` 2,400 p.a.
Supervision Charges
` 4,800 p.a.
Diesel, Oil, Grease, etc.
` 15 per trip each day
The truck carries goods to and from the city covering a distance of 50 kms each way.
On outward trip, freight is available up to the full capacity and on return trip, 20% of
capacity. Assume that the truck runs on an average of 25 days a month. Work out:
(a) Operating cost per tonne-Km
[` 0.50/tonne Km]
(b) Rate per tonne per trip that trip company should charge if a profit of 50% on
freight is to be earned.
[` 300 per trip]

Q.8

A transport company maintains a fleet of bus as follows:

Number of Buses
Carrying Capacity
20
50 passengers each
10
40 passengers each
Each bus makes 5 trips a day, covering a distance of 10 Kms in each trip. On an
average 80% of the seats are occupied in each trip and 5 buses are under repair
every day. Assuming that the company operates its fleet daily, ascertain the
operating cost per passenger-Km from the following:
Wages of 30 Drivers
` 3,000 each p.m. Wages of 30 Cleaners ` 1,000 each p.m.
Petrol
` 20,000 p.m.
Oil, Grease etc.
` 5,000 p.m.
Tyres, Tubes etc.
` 2,000 p.m.
Repairs
` 30,000 p.a.
Garage Rent
` 40,000 p.a.
Road Licences
` 20,000 p.a.
Taxes
` 5,000 / half year Permit Fee
` 25,000 p.a.
Salary of Manager
` 5,000 p.m.
Office Overheads
` 10,000 p.a.
[` 0.115 / passenger Km]
2
Compiled by CA Kapil Budhdev

T.Y.B.A.F./ 5th Sem. / Cost Accounting III / Operating Costing

Q.9

Q.10

Q.11

Mr. A owns a bus that runs between Mumbai and Pune and back for 10 days in a
month. The distance from Mumbai to Pune is 150 Kms. The bus completes the trip
from Mumbai to Pune and back on the same day. The bus goes another 10 days in a
month to Ratnagiri and the distance covered being 120 Kms. This trip also completes
on the same day. For the rest of 4 days it runs in the local city. Daily distance covered
in local city is 40 Kms. Normal capacity of the bus is 50 passengers. The bus is
generally occupied 90% of the capacity when it goes to Pune and 80% when it goes
to Ratnagiri. It is always full when it runs within the city. Calculate the rate Mr. A
should charge per trip from both the out-station passengers if he wants to earn a
profit of 25% on his net takings. The other particulars are given below:
Cost of Bus
` 6,00,000
Depreciation
20% p.a.
Salary of Driver
` 5,000 p.m.
Salary of Conductor
` 5,000 p.m.
Salary of Accountant
` 2,000 p.m.
Insurance
` 7,200 p.m.
Fuel [4 Kms / litre]
` 35 / litre
R.T.O. Tax
` 600 p.a.
Lubricant Oil
` 10 / 100 Kms Repairs
` 500 p.m.
Permit Fee
` 300 p.m.
Passenger Tax
23.25% of Net Taking
[` 0.50 / passenger Km]
(Commission: Working Back)
A transport company has been given a 20 km long route to run a bus. The bus cost is
` 5,00,000 and has been insured @ 2% p.a. while annual taxes amount to ` 12,000.
Garage rent is ` 6,000 p.m. Yearly repairs will be ` 12,000 and the bus is likely to last
for 10 years. Driver salary will be ` 5,000 p.a. and that of conductors ` 2,000 p,a. in
addition to 10% of the takings as commission (to be shared by the driver and the
conductor equally). Cost of printing tickets will be ` 500 p.m. Operations Manager's
salary is ` 400 p.m. who also looks after accounts.
Petrol and oil will be ` 25 per 10 km, The bus will make 3 round trips carrying on the
average 40 passengers on each trip. Assuming 25% profit on takings, calculate the
bus fare to be charged from each passenger if it runs 25 days in a month. [` 9.34]

A Company presently brings coal to its factory from a nearby yard, which is located 6
Kms away from factory and the rate paid ` 50 per ton for transportation. The total
coal to be handled in month is 24,000 tonnes. The company is considering proposal
to buy its own trucks and has option of buying either a 10 tonne or an 8 tonne
capacity truck. The following information is available:
Particular
10 Tonne Truck 8 Tonne Truck
Purchase Price (`)
10,00,000
8,00,000
Life (Years)
5
5
Scrap value at end of 5th year
Nil
Nil
Kms per litre of diesel
3
4
Repair/Maintenance p. a. per Truck (`)
60,000
43,000
Other Expenses fixed p.a. (`)
60,000
36,000
Lubricants and Sundries per 100 km. (`)
20
20
Each Truck will daily make 5 trips (to and fro) on an average for 24 days in a month.
Cost of Diesel ` 16 per litre. Salary of Drivers ` 3,000 per month and two drivers will
be required for a Truck. Other staff expenses ` 1,08,000 p.a. Present a Comparative
Cost Sheet showing transport cost per tonne of operating 10 tonne and 8 tonne
truck at full capacity utilization.
[` 41.36/tonne and ` 43.11/tonne]
3
Compiled by CA Kapil Budhdev

T.Y.B.A.F./ 5th Sem. / Cost Accounting III / Operating Costing

Q.12

(Calculation of Break Even)

A practicing CA now spends ` 3.60 / Km on taxi fares for his clients work. He is
considering two alternatives, the purchase of a new small car or an old bigger car.
The estimated cost figures are:
Particulars
New Small Car
Old Bigger Car
Purchase Price
1,40,000
80,000
Sale price after 5 years
76,000
48,000
Repair and Servicing p.a.
4,000
4,800
Taxes and Insurance p.a.
6,800
2,800
Petrol consumption per litre
10 Kms
7 Kms
Petrol Price per litre
14
14
He estimates that he does 10,000 Kms annually. Which of the three alternatives is
the cheapest? If his practice expands and he has to do 19,000 Kms p.a. what should
be his decision? At how many Kms p.a. will the cost of the two cars break ever and
why? Ignore interest and income tax.
[` 3.76 / Km and ` 3.40 / Km;
` 2.64 / Km and ` 2.74 / Km;
16,000 Kms]

Q.13

(Brain Storming)
NM school having 5 buses each plying in different directions for the transport of its
school students. In view of a 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 work-load of the students has been so arranged that
in the morning, the first trip pick up senior students and an hour later second trip
pick up the junior students. Similarly in the afternoon, the first trip drops the juniors
and an hour later the second trip takes the seniors 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 is
however payable for all 12 months in a year. The details of expenses are as under:
Particulars
Amount [`
`]
Drivers Salary [One per Bus Payable for all 12 months]
450 p.m. per driver
Cleaners Salary [One for all buses Payable for all 12 months]
350 p.m.
License fee, taxes etc.
860 per bus p.a.
Insurance
1,000 per bus p.a.
Repair & Maintenance
3,500 per bus p.a.
Purchase Price of the bus
1,50,000 each
Life of the bus
12 years
Scrap Value
30,000
2 per litre
Diesel Cost
Each bus gives an average mileage of 4 Kms per litre of diesel. Seating capacity of
each bus is 50 students. The seating capacity is fully occupied during the year.
Students picked up and dropped within range upto 4 Kms of distance from school
are charged half fare and fifty percent of the students travelling in each trip are in
this category. Ignore interest. You are required to prepared
a) Statement of expenses of operating a single bus and fleet of five buses for a year
b) Workout average cost per student per month in respect of students coming from
distance of upto 4 Kms and beyond 4 Kms from the school.
[` 16 and ` 32]
4
Compiled by CA Kapil Budhdev

T.Y.B.A.F./ 5th Sem. / Cost Accounting III / Operating Costing

HOSPITAL
Q.14

Care Hospital operates a fitness center to provide counseling on nutrition, exercise

and health care for major surgery patients after their release from the hospital.
Average patient will make three visits to the center. Each visit last 40 minutes.
The hospital has estimated the following operating costs of the center:
Particulars
Amount [`
`]
Occupancy costs per month
18,000
Clerical costs per month
12,000
Other costs per month
4,000
Medication charges per patient
44
Records charges per patient
16
Staffing cost per visit
9
Computer record update per visit
3
Hospital expects to have an average of 500 visits per month. What should be the
amount charged to each patient in order to cover the above costs? [` 300 / patient]

HOTEL
Q.15

From the following information relating to a hotel "Sea-View", calculate the room
rent to be charged to give a profit of 25% on cost excluding interest:
(1) Wages of the room attendant ` 20 per day. There is a room attendant for each
room. He is paid wages when the room is occupied.
(2) Lighting, heating and power (a) The normal lighting expenses for a room for the whole month is ` 500,
when occupied.
(b) Power is used only in winter and the charges are ` 200 per month for a
room, when occupied.
(3) Staff Salaries ` 1,80,000 p.a.; Repairs to building ` 20,000; Linen etc. ` 6,000
Sundries ` 8,000; Interior decoration and furnishing ` 20,000 p.a.
(4) Depreciation @ 5% is to be charged on building costing ` 4,00,000 and on
equipments at 10% p.a. Interest to be charged @ 5% on investment in
buildings and equipments amounting to ` 5,00,000.
There are 100 rooms in the hotel. 80% of the rooms are generally occupied in
summer and 30% in winter. The period of summer and winter may be considered to
be of 6 months in each case. You may assume month of 30 days.
[` 66.03 / day]

Q.16

Retex Hotel has a capacity of 100 single rooms and 20 double rooms. The average
occupancy of both single and double rooms 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 rooms ` 220 each / day & Double rooms ` 350 each / day
Fixed Costs
: Single rooms `120 each / day & Double rooms ` 250 each / day
Calculate the rent chargeable for single and double rooms per day in such a way that
the hotel earns an overall profit of 20% on hire charges of rooms. [` 460 and ` 575]
5

Compiled by CA Kapil Budhdev

T.Y.B.A.F./ 5th Sem. / Cost Accounting III / Operating Costing

Q.17

(Brain Storming)
New Ranjeet Hotel has three types of suites for Its customers, viz. single room,
double room and three rooms respectively. State the rent to be charged for each
type of suite on the basis of the following information:
(i)

The number of suites of each type are :

(a) Single room suites 100
(b) Double room suites 30
(c) Three room suites 20

(ii)

The rent of double room suite is to be fixed at 11/2 times the single room
suite and that of three room suite as twice the single room suite.

(iii)

The occupancy of each type of suite is as under :

(a) Single room suites
(b) Double rooms suites
(c) Three rooms suites

(iv)

Summer
90%
80%
60%

Winter
50%
20%
20%

Summer
`2
`3
`4

Winter
` 3.00
` 4.50
` 6.00

The annual expenses are as follows:

(a) Staff salaries ` 2,20,000
(b) Room attendant's wages when occupied:
(a) Single room suites
(b) Double room suites
(c) Three room suites

(c) Lighting, heating and power for full month, when occupied :
Lighting, heating
(a) Single room suites
` 40
(b) Double room suites
` 60
(c) Three room suites
` 80

Power
` 20
` 30
` 40

` 42,000
` 45,000
` 50,000
` 31,550

(d) Repairs and renovation

Linen, etc.
Interior decoration
Sundries
(e) Depreciation : Building @ 5% on ` 14,00,000
Furniture and Fixtures @ 10% on ` 1,00,000
Air conditioner @ 10% on ` 2,00,000
(iv)

Summer may be assumed for 7 months and winter for 5 months in a year. A
month may be taken as of 30 days.

(v)

Profit including interest on investment @ 25% on cost. [` 20, ` 30 and ` 40]

6
Compiled by CA Kapil Budhdev