Operating Costing

1. A Chemical factory runs its boiler on furnace oil obtained from Indian Oil and Bharat
Petroleum, whose depots are situated at a distance of 12 and 8 miles from the factory site.
Transportation of Furnace Oil is made by the Companys own tank lorries of 5 tons capacity
each. Onwards trips are made only on full load and the lorries return empty. The filling-in
time takes an average 40 minutes for Indian Oil and 30 minutes for Bharat Petroleum. But
the emptying time in the factory is only 40 minutes for all. From the record available it is
seen that the average speed of the companys lorries works out to 24 miles per hour. The
varying operating charges average 60 paisa per mile covered and fixed charges give an
incidence of Rs. 7.50 per hour of operation. Calculate the cost per ton mile for each source.
Cost Compilation Q. N 2
2. The Union Transport Company has been given a twenty kilometre long route to play a bus.
The bus costs the company Rs. 100,000. 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 managers
salary is Rs. 1,400 per month and stationery will cost Rs. 100 per month. Petrol and Oil 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 15% profit on taking 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.
Cost Compilation Q.N 6
3. A truck starts with a load of 10 tonnes of goods from station P. It unloads 4 tonnes at station
Q and rest of the goods at station R. It reaches back directly to station P after getting
reloaded with 8 tonnes of goods at station R. The distance between P to Q, Q to R and then
R to P are 40, 60 and 80 kilometers respectively. Compute Absolute tonne-kilometer and
Commercial tonne-kilometer.
Cost Compilation Q. N 12
4. Shangrila Transport Company charges Rs. 90 per ton for its 6 tons truck lorry load from city
A to city B. The charges for the return journey are Rs. 84 per ton. No concession or
reduction in these rates is made for any delivery of goods at intermediate station C. In
January 1997 the truck made 12 outward journeys for city B with full load out of which 2
tonnes were unloaded twice in the way of city C. The truck carried a load of 8 tons in its
return journey for 5 times but once caught by police and Rs. 1,200 was paid as fine. For the
remaining trips the truck carried full load out of which all goods on load were unaloaded
once at city C. The distance from city A to city C and City B are 140 kms and 300 kms
respectively. Annual fixed costs and maintenance charges are Rs. 60,000 and Rs. 12,000
respectively. Annual fixed costs and maintenance charges are Rs. 60,000 and Rs. 12,000
respectively. Running charges spent during 1997 are 2,944.
You are required to find out cost per absolute ton-kilometer and the profit for January, 1997.
Cost Compilation Q. N 15
5. DPS is a 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 had been so arranged that in the morning, the first trip
picks up senior students and the second trip plying an hours later picks up junior students.
Similarly, in the afternoon, the trip takes the junior students.
The distance travelled by each bus, one way is 16 kms. 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 2006-2007 are as under:
Drivers salary payable for all 12 in a month

Rs. 5,000 per month per driver

Cleaners salary payable for all 12 months

Rs. 3,000 per month per cleaner

( One cleaner has been employed for every five buses)

Licence fee and taxes etc.

Rs. 2,300 per bus per annum

Insurance Premium

Rs. 15,600 per bus per annum

Repair and maintenance

Rs. 16,400 per bus per annum

Purchase price of the bus

Rs. 1,650,000 each

Life of the bus

16 years

Scrap value

Rs. 150,000

Diesel cost

Rs. 18.50 per litre

Each bus gives an average of 10 kms 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
Bus Fare
% of students availing
the range of distance from school
this facility
__________________________________________________________________________
4 kms

25% Full

15%

8 kms

50% Full

30%

16 kms

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 the year.

(ii)

Work out average cost per student per month in respect of :

(a) Students coming from a distance of upto 4 kms from the school.
(b) Students coming from a distance of upto 8 kms from the school; and
(c) Students coming from a distance of upto 16 kms from the school.
Cost Compilation Q. N 13
6. In order to develop tourism, Ace 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 costs:
Aircraft lease

Rs. 350,000 per flight

Lending 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.

Cost Compilation Q. N 17
7. From the following information relating to Rabbison Hotel, calculate the room rent to be
charged to give a profit of 25% to the hotel.
(i) Salaries of staff Rs. 540,000 per annum

(ii) Wages of room attendant Rs. 25 per day.

(iii)

There is a room attendant for each room. He is paid wages only when
the room is occupied.

(iv)

Lighting, heating and power

(a) The normal lighting expenses for a room for the day is Rs. 50, when
occupied.
(b) Power is occupied only in winter and the charges are Rs. 20 per day for a
room, when occupied.
(v) Repairs to building Rs. 60,000 per annum
(vi)

License etc Rs. 48,000 per annum

(vii)

Sundries Rs. 75,000 per annum

(viii)

Interior decoration and furnishing Rs. 10,000 per annum

(ix)

Depreciation @ 5% is to be charged on building costing Rs. 1,400,000

and 10% on equipments

(x) Interest to be charged @ 5% on investment in buildings and equipments

amounting to Rs. 2,000,000

(xi)

There are 100 rooms in the hotel. 80% of the rooms are generally
occupied in summer and 30% in the winter. The period of summer and
winter may be considered to be of 6 months in each case. A month may
be assumed of 30 days.

Sanjeev Subedi Q. N 6