From the total cost, the subsidy is deducted to arrive at the net-cost of operating the canteen. After comparing in cinema halls composite cost unit is 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 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.
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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.
Overhead is actually the total of:
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.
Ii) To ascertain cost of all services produced within an undertaking viz., internal and external services. I) To calculate the cost 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.
- The total cost of providing a service will include labour, materials, direct expenses and overheads.
- The records also provide data for the proper allocation of costs and in this respect, these may be compared with the production details available in a manufacturing concern.
- Given the above, a cost center is, therefore, a natural division of an undertaking that helps to measure and understand operational costs and apply costs to products.
- It is that form of operation costing which applies where standardised services are provided either by an undertaking or by a service cost center within an undertaking.
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.
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.