Transport Costing

1

Introduction to Cost Accounting

After passing your senior secondary examination, if you set up a small
manufacturing unit, say manufacturing of packing boxes, a problem will
arise what price of each box you should quote to the buyer. Many factors
are considered while fixing the price of a product/item such as competitors
price etc. One of the basic factors is the cost of its production. Cost is
essential not only to fix price but also to ascertain the margin of profit.
Knowledge of the cost determination is also necessary to keep a check on
the cost of product/control on wastages, etc. The accounting used to study
the various aspects of cost is known as cost accounting. In this lesson, you
will learn about meaning, importance, limitations etc. of cost accounting.


Costing includes the techniques and processes of ascertaining costs. The
Technique refers to principles which are applied for ascertaining costs of
products, jobs, processes and services. The `process refers to day to day
routine of determining costs within the method of costing adopted by a
business enterprise.
Costing involves the classifying, recording and appropriate allocation of
expenditure for the determination of costs of products or services; the
relation of these costs to sales value; and the ascertainment of profitability.


Objectives
After studying this lesson, you will be able to:
state the meaning and scope of cost accounting;
explain the objectives of cost accounting;
differentiate between cost accounting and financial accounting;
state importance of cost accounting;
explain limitations of cost accounting.





Transport Costing


2
Introduction to Service Costing

Unit costing is the method of costing used when the cost units are identical.
Identical cost units should have identical costs and this concept of equality
of costs is the basic feature of unit costing.
Service or operating cost is the cost of providing services. Service costing is
the term applied to describe the system used to find the cost of performing
a service such as transport, gas or electricity. Service costs are particularly
suitable for the costing of road and rail transport services an they are also
utilized by electricity undertaking, hospitals, canteen, boiler house, etc. the
method of costing is different from that used in connection with
production, and the difference lies chiefly in the manner of assembling the
cost data and finally in its allocation to cost units.


Introduction to Transport Costing

In transport undertakings most of the statistical data required for cost finding
and cost control purposes are obtained from Daily Log Report.
All repairing and maintenance work are recorded on repair tickets and are then
coasted.

In order to prepare a Transport Cost Sheet for a transport undertaking the
costs may be subdivided as under:-

a) Wages and running costs: - These include cost of petrol, oil, grease, wages
of assistants and drivers, etc.

b) Maintenance charges: - These include repairs and overhauling of vehicles,
garage charges, tyres, etc.

c) Fixed charges: - These fixed expenses include insurance, license,
depreciation, etc.

The statistical data regarding costs, maintenance and performance are helpful
in
preparing a performance in respect of each vehicle. In order to compare the
operating efficiency for each period, the total costs thus arrived at are divided
Transport Costing


3
by the bases such as number of hours or days, number of kilometers run,
number of commercial ton-kilometers, etc. Costs per unit thus obtained are
compared with the past result. A monthly Vehicle Cost Sheet and Performance
Statement are generally used in many transport undertakings.

Cost control is always possible by means of comparison of actual performance
with the budgeted performance. Various control measures, viz., securing the
optimum use of vehicles, regular maintenance as a planned operation,
avoidance of loading and unloading delays prevention of overlapping and
duplicated journeys, planned replacement of vehicles, etc., may be instituted.


Need of Transport Costing

In todays challenging and ever changing business environment, it is important
that managers have valid and reliable information to make operational and
strategic decisions regarding their organizations. In many cases, the
information required to make these decisions is cost- related. Cost allocation
models, or cost models, are tools that help managers gain insight into an
organizations cost structure, which can be vital to informed decision-making.
For example, cost models provide organizations with a historical snapshots
of the cost of providing products or services over a specified time period.
Organization can use such information to conduct profitability analyses,
develop operating budgets, and project costs for future business undertakings,
such as offering new products or services, changing sourcing strategies, or
expanding operations. Information from a cost model can also be used to
identify opportunities for cost savings and to improve operational efficiencies.





Transport Costing


4
Purpose & Scope of Transport Costing
The purpose of this evaluation was to determine whether the bus cost
allocation model used by regional transportations district provides valid and
reliable cost information for use in decision making. The district uses the bus
cost model, as well as analyses performed using the models outputs, to
evaluate the cost effectiveness of services provided and also to support
decision makings in many areas of the districts operations, including the
privatization of bus services and long term planning.
IntroductIon About beSt
The Bombay Tramway Company Limited was formally set up in 1873. The
Mumbai Municipality was given the right to buy up the concern after the first
25 years or after every period of 7 years thereafter. After this contract was
entered into between the Bombay Tramway Company and the Municipality,
the Government of Mumbai enacted the Bombay Tramways Act, 1874, under
which the Company was licenced to run a tramway service in the city. The
tram-cars were of two kinds-those drawn by one horse and those drawn by
two. In 1905, a newly formed concern, The Bombay Electric Supply &
Tramways Company Limited bought the Bombay Tramway Company and the
first electrically operated tram-car appeared on Mumbais roads in 1907.

Mumbai saw its first bus run on 15th July, 1926. The people of Mumbai
received the bus with enthusiasm, but it took quite sometime before this
means of conveyance really established itself. For several years, it was looked
upon as transport for the upper middle classes. Those were the days when the
tram was the poor mans transport, carried one all the way from Sassoon Dock
to Dadar for a mere anna and a half, that was nine paise. The bus fare for the
same journey was four annas, that is 25 paise.


Transport Costing


5
The city of Mumbai has grown from a small trading center 50 years ago to be
rightly called the first commercial capital of India. In almost all spheres of
human activity. Mumbai has so many firsts to its credit. Likewise the Brihan
Mumbai Electric Supply & Transport Undertaking, popularly known as BEST
has scored many firsts in the country's life and established many records.

The intricacies of Mumbais transport system can easily baffle any new comer
from the countryside. To use a figure of speech, the city inhales and exhales
through the BEST bus services. The changeover from horsedriven trams to
buses has been spectacular.

When the Corporation took over the Company in 1947, there were 242 buses
in operation on 23 routes and these buses carried 2.38 lakh passengers per
day. At present, there are 3380 buses carrying 45 lakhs passengers daily on 335
routes. Special transport arrangements are made and extra buses under
various Action Plans are operated during the year on various social/ religious
occasions. The Undertakings also pays special attention to operate extra buses
to clear the stranded passenger traffic on account of dislocation of Railways,
heavy rains and similar such events. The Undertaking also operates extra buses
on Saturdays, Sundays and Holidays to clear the excursion traffic at various
picnic points. The undertaking has been endeavouring to ease the journey of
lady passengers, particularly working women by introducing Ladies First buses
at various points where the ladies are given priority while boarding the bus at
the starting point.

Faster clearance of traffic in the megapolis of Mumbai with less number of
vehicles has been receiving attention for sometime. It is with this background
that the Undertaking has introduced Vestibule buses as a part of its fleet on
the eve of Golden Jubilee. Since these buses carry about 110 passengers each,
they clear the passenger traffic faster, particularly during the peak hours.



Transport Costing


6
Facilities Provided

BEST believes that it has a social obligation towards the city where it has
grown. As such it is felt essential to provide concession to certain sections
of society. A few schemes are listed below.

Free Travel Facility: Presently, the BEST provides free travel facility to the
freedom fighters. One person accompanying the freedom fighter is also
permitted to travel free. Municipal Councilors and Non-Councilor
Members of the BEST Committee are also permitted to travel free on BEST
buses. Adhoc Members of Legislative Assembly and Legislative Council,
accompanied by his wife and Female Members accompanied by any one
viz. husband, son, daughter, father, mother, brother or sister are allowed
to travel free on BEST buses. Police personnel are allowed to travel free on
BEST buses against an ad-hoc payment of compensation towards free
travel facility by the Government of Maharashtra. This facility of free
travel however is not available on Luxury and Air-Conditioned services.

Concessional Fare: Children below 12 years of age are charged
concessional fare. Student studying upto Higher Secondary and upto the
age of 22 years are charged concessional fare. Persons who are 60 % and
above, permanently Orthopaedically handicapped are charged
concessional fare. Blind persons are charged a flat fare of Re.1/- per
journey. Concessional fare facility is not available on Luxury and Air-
Conditioned Services.

Reservation of Seats: The BEST has reserved 3 seats for handicapped
person , 2 seats for Senior Citizens and 6 seats for lady passengers in the
Single Decker buses. In the Double Decker buses it has reserved 3 seats
each for lady passengers and handicapped persons and 2 seats for Senior
Citizens.

Front Door Entry: The BEST have permitted physically and mentally
handicapped persons, senior citizens, and expectant mothers to board the
bus from the front door except at starting point.

Transport Costing


7

Passenger Refund Claims: In case the conductor does not have enough
change to return the balance of the passenger, he writes on the back of
the ticket the amount of balance due and authenticates the same. Such a
ticket is treated as a receipt by the BEST. The passenger can claim the
balance amount from Ticket & Cash Department, head office at Wadala
after producing the ticket.

Disaster Management: In the event of disruption of rail services the BEST
operates additional buses in the area of disruption. Timely actions are
taken with the help of our communication system.


Bus no : 19 Ltd

MANTRALAYA SHIVAJI NAGAR DEPOT
The total distance between mantralaya and Shivaji nagar depot is 24 km.
The bus takes 5 round trips daily & the bus works from Monday to
Saturday in a week.
The bus takes approximately 1hour to cover a one way distance.
The bus halts at depot for around 30mins & the same time is taken for
whole returning.
So the total time taken to complete one round trip is 2.5hrs
approximately.
The bus makes 5 round trips so the bus runs 12.5hrs 13hrs in one day.
Transport Costing


8





MANTRALYA
HUTATMA CHOWK
V.T / MUMBAI CST
BYCULLA STATION (E)
JIJAMATA UDHYAN
LALBAUG
PAREL
DADAR T.T
GANDHI MARKET
SION
CHEMBUR NAGAR
ASHOK NAGAR
SHIVAJI NAGAR DEPOT
Transport Costing


9
Timing of The Bus
MANTRALAYA SHIVAJI NGR
DEPOT
BREAK WAY CAPACITY
1. 6 : 45 AM(start) 7.45am(end) 7.45 to
8.15
opp 40 %
2. 9.15am (end) 8.15am (start) - right 100%
3. 9.20am(start) 10.20am(end) 10.20 to
10.50
opp 70%
4. 11.50am (end) 10.50am(start) - right 100%
5. 12.00pm(start) 1.00pm(end) 1.00 to
1.30
opp 70%
6.** 2.30(end) 1.30 (start) - opp 70%
7. 4.00pm (start) 5.00(end) 5 to 5.30 right 100%
8. 6.30pm(end) 5.30pm(start) - opp 70%
9. 6.40pm(start) 7.40pm(end) 7.40 to
8.10
right 100%
10. 9.10pm(end) 8.10pm(start) - opp 70%



Transport Costing


10
The Bus halts at Mantralaya for 1.5hrs after completing 3 trips as a lunch
break or refreshment break.
Every government driver is supposed to get a break of atleast 1hr after
completing his job of 6hrs.So here he starts at 6.45 & ends at 2.30pm.He
will take a break of 1.5hrs @ Shivaji depot.
A bus can be run maximum to 14hrs per day & 12hrs minimum.
These Rules & regulation for drivers,their working hours ,rules and terms of
driving are set up by the government.

DETAIL OF EXPENDITURE
FULLY RELATED SHARING EXPENSES
Salary to Driver Administrative staff
Salary to conductor Office staff
Depreciation Supervisor
Insurance Directors & Officers
Diesel consumption Ticket checker
Repairs
Fire safety inspection
Maintainence of Bus


NUMBER OF KMS RUN
24KM X 2 WAYS X 5 TRIPS X 6DAYS X 52WEEKS = 74880 KMS


Transport Costing


11
SALARY TO DRIVERS AND APPOINTMENT OF DRIVERS
Drivers are appointed by the team of state government officer. The minimum
age for which one can apply for the post of BEST driver is 20 & maximum age is
60.
The driver should clear all the test taken by the union of India (
Maharashtra State Motor Driving License)
He should be knowing to drive bus from the past 2 years.
He should have or have to take out a license in PSUBUS Class ,
Description TRV PSV bus.
PSUBUS means transport vehicle ,public bus
Therefore any PUT Driver HC should have PUTBUS license
The appointment of driver in Maharashtra is also based quota wise i.e
80% to Maharashtra & 20% to others.
The salary given to each government bus driver is Rs.5200 which was
increased from 1
st
April . Earlier it was Rs.5000.
The duty of a driver should not exceed more than 11.5 hrs to 12 hrs per
day. The driver should sleep for 10 hrs per day.
The drivers are entitled to get Bonus of 50% of salary in every 6 months
which is considered as expenses.









Transport Costing


12
Appointment of Conductor and salary of Conductor
A person can apply for the post of conductor whos age is minimum 20
or maximum 60.
The person applying for the post of conductor should be qualified atleast
till H.S.C in English / Hindi or Marathi medium.
He should compulsorily know Marathi.
There is quota system in which 80% Maharashtrian and 20% Non
Maharashtrian.
The appointment of conductors for BEST is taken by the state
Government.
The salary given to each conductor is Rs 4900 where as till 1
st
April 2010
it was Rs 4600.
4900 X 12 X 50% X 2 = 63700.
This is the net salary which the driver gets in his hand i.e bonus of 50% of
salary every month.
Depreciation
The cost of each BEST bus is Rs 2250000 assuming that the bus has been
in use from last 10 years.
The depreciation is charged Rs 8000 every year considering the life of
the bus is 30years.
Insurance
The bus is insured for Rs 1500000 and monthly premium paid is 0.25%
of insured value i.e 0.25% of 1500000.
The insurance of the bus reduces the risks/damage to the bus which can
be caused by any accident in the life line of the bus .
Yearly Insurance Premium = Rs 15000.



Transport Costing


13
CNG Consumption
The average consumption of CNG is 25 per km. the cost of CNG is Rs 30.
Cost of CNG in the year is
= Total km run X Rate per km
Average consumption
= 74880 X 30
25
= Rs 89856.
From past two years the rates of CNG have been increasing on a very
speedy way and hence the cost of tickets have also increased.
Early minimum fare was Rs 3.15 and now it is Rs 4.0.













Transport Costing


14
Particulars Amount (Rs.) Amount
(Rs.)

FIXED
Depreciation 8000
Insurance Premium 15000
Fire Safety Consumption 6400 29400

VARIABLE
Salaries to Driver 67600
Salary to conductor 63700
CNG Consumption 89856
Repairs 23000
Administration 1022
Printing of Tickets 5500 250678
TOTAL COST 280078
ADD : Profit (5% of Cost ) 14976
TOTAL TAKINGS ( bus fare ) 295054



Transport Costing


15
Cost Per Km = Total Operating Cost
No of Km Run

Cost Per Km = 295054
74880
= 3.94
Benefit of Transport Costing
This guidebook shows that transport facilities and activities impose many
external costs; that is, costs not borne directly by users, including traffic
congestion and crash risk imposed on other road users, roadway and parking
facility costs not funded through user fees, and pollution emissions. People
sometimes argue that external benefits offset these external costs. For
example, The Highway Users Federation, the International Road Union, the
Deutsche Strassenliga (a German freight organization), and the German Club of
Automobilists have published reports arguing that driving provides significant
external benefits. Supposed benefits include improved personal mobility,
improved economic productivity, and general regional economic development.
These studies have been criticized for failing to distinguish between internal
and external
benefits, counting economic transfers as benefits, and non-marginal
analysis.11 A 1982 USDOT study concluded, the preponderance of expert
opinion probably lies on the side of saying that there are no external benefits of
highway consumption beyond the benefits to the users Other studies reach
similar conclusions.An Office of Technology Assessment report also concludes
that there are no significant marginal external benefits of transportation.









Transport Costing


16

Conclusion
The Reason of this evaluation was to determine whether the bus cost
allocation model used by regional transportations district provides valid and
reliable cost information for use in decision making. The district uses the bus
cost model, as well as analyses performed using the models outputs, to
evaluate the cost effectiveness of services provided and also to support
decision makings in many areas of the districts operations, including the
privatization of bus services and long term planning.
Cost models should use the best available cost drivers. Cost drivers establish
the basic upon which costs are allocated and , therefore, are fundamental to
any cost model. The best available cost driver is one of that most closely
approximates the way the cost is consumed (i.e, what factors drive costs)
and for which source data are available. For example , as discussed previously ,
the Districts total cost for bus diesel fuel is largely a function of how many
miles the buses are driven.
Overall, the inaccuracies , inconsistencies , and other errors we identified
within the Districts bus cost models are rocted in a lack of adherence to some
core principles in cost model design and execution. These include ensuring
that valid and complete source data are used, cost drivers are appropriate and
are best available, and proactive steps taken to validate the models output.
The Districts needs to make a number of Improvements to ensure accuracy
and reliability of the cost information the cost model produces .





Transport Costing


17

Webliography

www.bestundertaking.com
www.costaccounting/operating-transpot.com

Bibliography

Cost Accounting
TY.Bcom (Accounting & Finance )
Ainapure Ainapure

Cost Accounting Standard
By ICWAI