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Introduction
Operating cost is defined as the cost of rendering or
providing a service. Service costing. CIMA (Charted institute of Management Accountant) - Operating costing as the cost of specific services and functions, e.g. maintenance, personnel, canteen, etc. These may be referred to as service centers, departments, or functions.
Operating Costing
Companies belonging to the service sectors like
transport companies, hospitals, electricity and gas companies, hotels and restaurants, water supply and road maintenance companies are some of the enterprises where operating costing is applicable.
Characteristics
It is a system of costing employed to find the cost of
rendering a service. Under this system, costs are accumulated under suitable headings and are expressed in terms of the unit of services rendered. Unlike in other methods of costing, selection of cost unit is difficult in operating costing. Operating costs are mostly period costs. This system requires a more detailed but simpler statistical data for proper costing
Features
Classification of costs into variable and fixed
Ascertainment of costs is done periodically Stages and processes involved in conversion of basic
Cost Unit
The selection of a unit of cost in case of operating
costing is a difficult job. It depends upon the nature of business. There can be two types of unit cost:
Simple
the unit of cost is quite clear, e.g. per bed in case of a hospital
Composite.
Classification Of Expenses
Expenses are generally classified into following three
categories
Fixed cost or standing charges Variable cost or running charges Semi Variable or maintenance charges
Classification of Expenses
Motor Transport Costing
Boiler Costing or Power House Costing Canteen Costing Hospital Costing
insurance, taxes, license, time-based depreciation, wages of drivers and cleaners, establishment cost of workshops, general service cost, etc. Such costs are incurred irrespective of the run of a vehicle.
nature. They include expenditure on repairs, maintenance, tyres, tubes, accessories, and spares. Variable costs These costs are of variable nature. The extent of such costs depends on the trips made and the distance run by the vehicle. These costs include cost of fuel (petrol or diesel oil), lubricating oil, depreciation based on run, wages of driver and cleaner, etc. Running cost can be suitably allocated to each vehicle.
follows:
Water: Cost of supply, purification and softening Indirect materials: Service materials and small tools Fuel: Coal or oil Labour: Wages of coal handlers, stockers and ash removers Supervision: Wages of foremen and salary of works manager Maintenance: Furnace repairs, renewal of fire bars, Replacement of fire iron, etc. Overhead costs: Rent, rates, depreciation, insurance and interest on capital
Canteen costing
The objectives of canteen or hotel costing are: Ascertainment of cost per unit Cost analysis for decision-making Inter-firm comparisons Collection and analysis of cost for cost control Total operation of a hotel is divided into a number of
cost centres.
Restaurant Housekeeping Laundry
Canteen costing
The important heads of expenditure is as follows: Provisions: Vegetables, fruits, meat, flour, milk, oil, sugar, cream, tea, coffee, soft drinks, etc. Labour: Salary of cooks, waitresses, kitchen assistants, supervisors, and porters Service: Steam, gas, electricity, power and light, water Consumable stores: Cutlery, crockery, glassware, table linen, washing up clothes, drying up clothes, cleaning materials, dustpans, brushes, etc. Miscellaneous overheads: Rent, rates, depreciation, insurance, etc. Credit: Charges of meals, tea, and other sales
Hospital costing
The hospital services can be divided into following
categories:
Outpatient department Wards Medical service departments, such as Radiotherapy,
Diagnostic
lighting, catering, laundering, medical records, and administration Other service departments, such as dispensary, transport, clearing, etc.
Hospital costing
Following units can be used for this purpose:
Per outpatient visit Per outpatient registration Per patient-day or week Per surgical case Per course of treatment Per day Per 100 units