COST MANAGEMENT
ASSIGNMENT
Cost Management Assignment
Select any Two cities or (two towns) , the minimum distance should be 150 kms.
Ascertain the fare per passenger for the above distances using the operating cost techniques.
You can assume as many costs as may be for your calculations. For example, including toll
charges.
The bus must be a superdeluxe, Air Conditioned, high-tech model vehicle having 40 seaters.
Operating costing:
Operating costing: It is method of ascertaining costs of providing or operating a
service. This method of costing is applied by those undertakings which provide
services rather than production of commodities. This method of costing is used
by transport companies, gas and water works departments, electricity supply
companies, canteens, hospitals, theatres, school etc.
Transport organizations can be divided into two categories (Good Transport & Passenger
Transport). To arrive at the solution for this problem we will further explore Passenger
Transport.
Cost unit for passenger transport organization is passenger -kilometer It means cost of carrying
one passenger over a distance of one kilometer.
The costs are shown under the following heads:
1. Fixed or standing charges: These costs remain constant irrespective of the distance
travelled. These includes insurance fees, License fees, depreciation, interest on capacity,
salary to driver, conductors, cleaners etc. paid monthly, Garage cost, garage rent , Taxes
etc.
2. Variable Costs/Running charges: These costs are generally associated with the distance
travelled. It includes charges on petrol, diesel, lubricating oil, Toll charges wages to
operating Staff if based on operations etc.
3. Maintenance charges: This expense is of semi-variable under and includes the cost of
tyers and tubes, repairs and maintenance, spares and accessories overhaul, etc.
Key Assumptions:
We are making the below assumptions for this problem: All currency value in INR
a) KP Transport Company operates a bus from Bangalore to Vellore which is a route of 213
Kms.
b) The bus is Superdeluxe, Air Conditioned, high-tech model vehicle having 40 seaters.
c) The Bus Costs the company a sum of Rs35,00,000/-
d) It has been insured at 5% p.a
e) The annual tax will amount to Rs. 40,000/-
f) Garage rent is Rs 5,000/- per month
g) Annual repairs will be Rs. 35000/-
h) The bus is likely to last for 15 years and the scrap value is estimated to be 5,00,000
i) The driver’s salary will be 25,000 per month and the conductor salary will be 20,000 per
month on addition to 10% of taking commission (to be shared by the driver and
conductor equally)
j) Cost of Stationery will be 1000 per month
k) Manager/Accountant Salary is 7000 per month
l) Petrol and oil will be 750 per 100 kilometers
m) The bus will make 2 up and down trips carrying on an average 75% of its capacity
n) The bus will run on an average 25 days in a month.
o) The toll charges on the route is 640 per trip
Assuming 15% profile on takings we are going to calculate the bus fare to be charges from each
passenger.
Solution:
1) Total Kilometers run per month:
=Number of Bus × Distance × Number of days in Month × Number of Trips
=1 Bus × 213 kms × 25 days × 4 single trips ( 2 round trips) = 21,300.00 kms
2) Total Passenger Kilometers per month:
=Total Kilometers run per month × Seating Capacity
=21,300 kms× 30 seats (75% capacity of 40-Seater bus)
= 639,000 Passenger-Kms.
3) Petrol & Oil Consumption per month:
=Total Kilometers run per month × Petrol consumption per KM
=21,300 kms × (750/100kms) = Rs 159,750.00
4) Calculation of Depreciation of Bus (Per Month):
=Cost of the Bus- scrap value at the end of the 15 years
Expected life of the bus
= 35,00,000-5,00,000
15 years
= 200,000 per annum
Depreciation per month = 200,000.00
12 months
= 16,666.67 per month
5) Insurance Charge:
=Total cost × Insurance per annum
=35,00,000 ×5 %
= 1,75,000
Insurance per month = 1,75,000.00
12 months
= 14,583.33 per month
6) Tax Charges:
Tax per month = 40,000.00
12 months
= 3,333.33 per month
7) Repair Charges:
Charges per month = 35,000.00
12 months
= 2916.66 per month
8) Toll Charges:
Toll per day = Toll Per Trip × Number of Trips
= 640 ×2
=1280
Toll Per month = 1280 ×25 days
= 32000 Per Month
9) Total cost before commission on collection and Net Profit is ₹ 287,249.99
Commission on collection to driver and conductor is 10% of collection and
profit is 15% of collection means:
100% - (10% +15%) i.e. 75% = ₹ 287,249.99
=. ₹ 287,249.99 X 100 = ₹ 382999.9867
75
*Total commission on collection = 10% X ₹ 382999.98
= ₹ 38299.99
Driver’s share = 50% X ₹ 34033.33 = 19150
Conductor’s share = 50% X ₹ 34033.33.67 = 19150
*Profit on collection = ₹ 3,40,333.32 X 15% = 57450
Hence the fare per passenger for the route is ascertained to be ~
₹127.67 rounded to ~ ₹128/-
- Thank You -
