You are required to advise him what rent should be charged from customers per day so that he is able to earn 25 profit on cost other than interest. (c) Determining the basis for charging to departments using the service. (a) Choosing between alternative means of transport. A transport company- owning Lorries may compare the cost of using a lorry with the prevailing railway rates and decide to make use of the alternative if that appears to be cheaper. The expenses incurred by a transport concern can be classified into three categories.
Indirect expenses are also known as overheads.
Vi) To determine whether to produce a service or buy it from outside. V) To make proper evaluation of different alternatives available. (iii) The amount of working capital required to meet out the day-to-day expenses, is comparatively less.
- Therefore, we are going to view the computation of transport costing in this section.
- It is said that, “a well-designed cost sheet is the heart of transport costing”.
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- Following are composite units based on two or more factors.
- Dr. Sanjeev Sharma and Dr. (Mrs.) Sharma hire a building to run a nursing home.
Ii) To ascertain cost of all services produced within an undertaking viz., internal and external services. I) To calculate the cost in cinema halls composite cost unit is of uniform service rendered to the customers. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications.
A total of all the direct costs is known as
From the total cost, the subsidy is deducted to arrive at the net-cost of operating the canteen. After comparing the net cost with the sales proceeds profit or loss is calculated. Power House Costing is concerned with the ascertainment of cost per unit of steam or electricity produced.
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The cost unit may be simple in certain cases, and composite or compound in other cases like transport undertakings. The total cost of providing a service will include labour, materials, direct expenses and overheads. For instance, the cost unit of steel is naturally ascertained in terms of per ton. Similarly, the cost unit of carrying a passenger by a transporter is naturally ascertained in terms of the distance traveled in kilometers. After costs have been ascertained, accumulated, classified, and recorded, they must be related to a convenient measure of the quantity of the product or service.
Motor transport includes Buses, Taxies, Private Cars, Carriers and Lorries etc. A log sheet is maintained for each vehicle to record the details of trip, running time, and distance covered, running cost i.e., petrol and diesel, loading or uploading time etc. These log sheets help the management to ascertain the operating cost, to avoid idleness of vehicle and to exercise control.
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The costs of producing steam used in power house for the generation of electricity is also included in the power house costs. A proper unit of cost must be selected in order to ascertain the cost per unit of service provided. The selection of a proper unit is a difficult task and it depends upon the nature of work and the purpose for which cost has to be computed. (v) Unlike in other methods of costing, selection of cost unit is difficult in operating costing. The distinction is necessary to ascertain the cost of service and the unit cost of service.