The cost unit, which uses only one single parameter for measurement of the service cost, is termed as a simple cost unit. It is expected that 90% of the rooms will always remain occupied. If a margin of 25% on total takings is desired, ascertain the rent to be charged per day assuming a month of 30 days. To compare the cost per unit of one means of transport with that of another, and to find out the profitable means of transport. V. Proper apportionment of costs to different departments which use the service is possible. Operating costing is applied in those areas which provide services and not producing consumable or industrial goods.
Factors for Selecting a Suitable and Effective Cost Center
- There is nothing like finished services inventory similar to finished goods inventory.
- Services are termed as internal when they have to be performed on inter-departmental basis in factory itself e.g.
- As most factory canteens are subsidised by the employer to some extent, the amount of subsidy is deducted from the total cost.
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Service Costing or operation costing is normally used in service sector. When the service is not completely standardized, it is the cost of producing and monitoring a service. It is a method of costing applied to undertakings which provide service rather than production of commodities. Service may be performed internally and externally. Services are termed as internal when they have to be performed on inter-departmental basis in factory itself e.g. Services are termed as external when they are to be rendered to outside parties.
C. Salary of Staff
The object of hotel costing is to ascertain the cost per room or cost per man. Operating costing is a method of ascertaining cost of providing or operating a service. In this method, cost is determined in the same way as in the unit costing method or output costing method by preparing a cost sheet. Operating costing method is applied in undertakings which provide service or fall in the category of public utilities. The methods of classification, collection and allocation of operating costs to cost units are different from that of manufacturing units as well as for different services. Operation costing is the cost of rendering services.
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Cost and Works Accounting 2 Solved MCQs
It is the costing of specific services or functions. Similarly, cost per quintal-kilometre in case of motor transport means cost of carrying the load of one quintal for one kilometre. For electricity supply undertakings, the unit of cost may be kilowatt-hour which signifies the cost of one kilowatt of electricity generated during an hour. But, in certain cases, a composite unit of cost is used, e.g., per passenger-kilometre in case of bus companies, which means the cost of carrying one passenger for a distance of one kilometre. The cost per service unit is calculated by establishing the total costs involved in providing the service and dividing this by the number of service units in providing the service. A production cost center refers to a cost center that is engaged in regular production (e.g. converting raw materials into finished products).
Meaning and Definitions of Operating Costing
As most factory canteens are subsidised by the employer to some extent, the amount of subsidy is deducted from the total cost. These expenses are incurred on the actual running of the vehicle. They vary with the distance covered or the trips made. It includes expenses, which remain fixed, whatever may be the distance covered, or trips made. The vehicle may be idle, but these expenses have to be met. To find cost per unit of operating a vehicle and to fix the rate for the carriage of passengers or goods.
An impersonal cost center refers to a cost center that consists of a location, item of equipment, in cinema halls composite cost unit is or a group of these (e.g., machines, departments, and vehicles). Cost centers can also be divided into operation cost centers and process cost centers, as well as personal cost centers and impersonal cost centers. In cost accounting, costs are understood in terms of cost centers and cost units. With this in mind, it is essential to know what these terms mean. The hospital cost includes fixed charges such as labour salaries, maintenance charges, rent, administration expenses and other overheads.
The boiler house provides supporting services to power and electricity generation units, in the form of steam which is used in the air conditioning, power generation and air compression. The common objectives of transport costing include a comparison between two different vehicles or group of vehicles and; whether to use an alternative source of transport or own vehicle, in terms of cost involved. The object of Cinema house costing is to ascertain the cost of operating a cinema theatre. In case of a cinema house the unit of cost is “a man-show”. A hospital is engaged in providing various medical services to the patients and hospital costing is applied to determine the cost of these services. It refers to the cost of those undertakings which do not produce any tangible product but render services.
The unit may be simple as under unit costing, e.g., per bed in case of hospitals, per 1,000 litres in case of waterworks, per child in case of schools, per km. Of road maintained in case of a road maintenance undertaking, per cup of tea or per dish in case of canteen service etc. These are expenses which are more or less fixed in nature. For example in case transport service garage charges, insurance, taxes, license and depreciation are standing cost. In case of Hospital the depreciation pertaining to the cost of building, equipment, beds, beds insurance etc. are fixed charges.
Another example can be hotels, for example, may use the ‘occupied bed-night’ as an appropriate unit for cost ascertainment and control. Dr. Sanjeev Sharma and Dr. (Mrs.) Sharma hire a building to run a nursing home. The building has 8,000 square feet of area consisting of 40 rooms of 150 square feet each.
It is the cost of producing and maintaining a service. Service costing is a method of ascertaining the cost of providing or services a service. Service costing is an essential concept since every service organization needs to ascertain its business overheads. It is to ensure fair pricing of the products, i.e., services; and for keeping a control over its fixed and variable costs. It is said that, “a well-designed cost sheet is the heart of transport costing”. For collecting and controlling costs, costs are classified and accumulated under the three heads, suitably analysed and presented periodically in the form of an operating cost sheet.