In large firms, a boiler house is a service department providing services to production departments. 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. Operating costing is a method of costing designed to ascertain and control the costs of services. Those industries or organisations which do not produce any product but render some service to customers can use this method. This method of costing is employed in those undertakings which are engaged in providing or operating services rather than in manufacturing tangible products.

The object of canteen costing is to ascertain the cost per meal, cost per cup of tea etc. The control of the cost of operating each vehicle. Operating costs of different vehicles can be compared and thus efficiency can be improved. (a) Consumer supply services like electricity, water and gas.

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• Generally, the higher the degree of variability and complexity of the costs, the more challenging and subjective the cost unit calculation becomes.
• By implementing effective cost unit management practices, you can gain better control over your costs, improve financial performance, and make informed business decisions.
• The hospital cost includes fixed charges such as labour salaries, maintenance charges, rent, administration expenses and other overheads.
• In transport companies, ……………sheet is maintained for each vehicle to record details of trips made by vehicles during a specified period 9.
• From various perspectives, challenges arise when calculating cost units.

The fixed cost includes depreciation, staff salaries, interest on capital, taxes, etc. Whereas, variable cost involves electricity charges, temporary staff salary, etc. The hospital cost includes fixed charges such as labour salaries, maintenance charges, rent, administration expenses and other overheads.

In this section, we will discuss the definition and types of cost units, and how they can be used to calculate the cost of production or service delivery. Tammy’s total variable costs per product are $15 for the BMX, $10 for the mountain bike, and $5 for the road bike. Using the break-even point per composite unit formula, we can calculate how much Tammy will need to sell of each unit in order to breakeven. Composite units are often used by cost accountants to measure the break-even point of multiple products, departments, and even the company as a whole.

Operating Costing

The product produced is only one but it is some service. The service being provided is standardised, or is regarded as such. These may be for sale to the general public, or within the organisation itself. In fact, every manufacturing entity has some service centres, else service departments which act as ancillaries to the production departments. 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.

SECTION A PART II – SHORT ANSWER QUESTIONS Write the answer that best completes each of the following questions/statement 1. The method of regular physical checking of materials throughout the year is known as………………… 3. Time not spent on productive work is known as……………… 4.

• There are different costing systems that can be used to calculate the cost units, such as job costing, process costing, and activity-based costing.
• Further, the cinema operator can also install vending machines or supply any other recreational service, such as through coin-operated machines etc., which a customer may or may not avail.
• V. Proper apportionment of costs to different departments which use the service is possible.
• Fixed costs may include salaries of staff, depreciation of fixed assets etc., while variable costs may comprise lighting and power charges, wages of room attendants etc.
• Service undertakings do not produce physical articles for stock and sale.

It is a special type of process costing where an operation is a cost centre instead of a process. 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.

Boiler House Costing (With Cost Sheet Format)

Workers who are appointed on day-to-day basis and are not on the payroll sheet are called ………………… workers. Under/over absorption of overhead arises only when overhead absorption is based on………………rates 6. The costs incurred up to the point where individual products can be identified are called………………………costs 7. In transport companies, ……………sheet is maintained for each vehicle to record details of trips made by vehicles during a specified period 9.

The process of grouping together items which are similar in an account is…………… 15. Minimum stock or safety stock is otherwise called…………… 16. The period of time between ordering and when goods are delivered is…………… 27 There are different costing systems that can be used to calculate the cost units, such as job costing, process costing, and activity-based costing.

Overhead is actually the total of:

Calculating this average is useful to company management in determining what projects and expansionary activity is worth undertaking. The average is also of use to lenders and equity holders in that it gives them more information on what return they might see on the capital invested. It also lets them know how risky the company’s debt is, in comparison to other companies. It is said that, “a well-designed cost sheet is the in cinema halls composite cost unit is heart of transport costing”.

The object of service costing is to find the operating cost, i.e., cost of servicing. When we talk about services, our mind recalls the multiple intangible products we use on a day to day basis. But do you know that all these services have different cost units and elements during computation? The most commonly used cost unit in service costing is the composite cost unit.

To find cost per unit of operating a vehicle and to fix the rate for the carriage of passengers or goods. 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. The calculation of the composite unit of cost in case of a transport undertaking can be illustrated with the help of the following example – But in case of other undertakings, a composite unit of cost is used. For example, in case of transport undertakings, it will be per passenger kilometre or per ton kilometre.

Government revises cinema ticket rates; theatres divided into four categories

In reality, product A is the most complex and requires the most overhead resources, such as machine time, energy, maintenance, quality control, etc. Product B is less complex and requires less overhead resources, and product C is the simplest and requires the least overhead resources. Remember, these examples provide a glimpse into the diverse aspects of cost unit calculation. By understanding the intricacies of cost unit calculation, businesses can make informed decisions regarding pricing, cost management, and overall financial performance. The degree of variability and complexity of the costs.

The budget control organization is usually headed by a top executive who is known as……………… 10. A summary of all functional budgets is referred to as…………… 11. That portion of the material cost variance which is due to the difference between actual quantity consumed and standard quantity specified is called………….. A costing method applicable where goods or services result from a sequence of production is known as…………… 13. Costs which a manager could avoid by a decision or course of action are called…………..