PPT - Operating Costing | Cost Accounting - B Com PDF Download

 Page 1


Operating Costing
Page 2


Operating Costing
Introduction
• Cost Accounting has been traditionally associated 
with manufacturing companies. However in the 
modern competitive market, cost accounting has 
been increasingly applied in service industries like 
banks, insurance companies, transportation 
organizations, electricity generating companies, 
hospitals, passenger transport and railways, 
hotels, road maintenance, educational 
institutions, road lighting, canteens, port trusts 
and several other service organizations. 
Page 3


Operating Costing
Introduction
• Cost Accounting has been traditionally associated 
with manufacturing companies. However in the 
modern competitive market, cost accounting has 
been increasingly applied in service industries like 
banks, insurance companies, transportation 
organizations, electricity generating companies, 
hospitals, passenger transport and railways, 
hotels, road maintenance, educational 
institutions, road lighting, canteens, port trusts 
and several other service organizations. 
What is Operating Costing?
• The costing method applied in these 
industries is known as ‘Operating Costing’. 
According to the Institute of Cost and 
Management Accountants [UK] operating 
costing is, ‘that form of operating costing 
which applies where standardized services are 
provided either by an undertaking or by a 
service cost center within an undertaking’. 
Page 4


Operating Costing
Introduction
• Cost Accounting has been traditionally associated 
with manufacturing companies. However in the 
modern competitive market, cost accounting has 
been increasingly applied in service industries like 
banks, insurance companies, transportation 
organizations, electricity generating companies, 
hospitals, passenger transport and railways, 
hotels, road maintenance, educational 
institutions, road lighting, canteens, port trusts 
and several other service organizations. 
What is Operating Costing?
• The costing method applied in these 
industries is known as ‘Operating Costing’. 
According to the Institute of Cost and 
Management Accountants [UK] operating 
costing is, ‘that form of operating costing 
which applies where standardized services are 
provided either by an undertaking or by a 
service cost center within an undertaking’. 
Nature of Operating Costing
• The main objective of operating costing is to 
compute the cost of the services offered by the 
organization. 
• For doing this, it is necessary to decide the unit of 
cost in such cases. The cost units vary from 
industry to industry. For example, in goods 
transport industry, cost per ton kilometer is to be 
ascertained while in case of passenger transport, 
cost per passenger kilometer is to be computed. 
Page 5


Operating Costing
Introduction
• Cost Accounting has been traditionally associated 
with manufacturing companies. However in the 
modern competitive market, cost accounting has 
been increasingly applied in service industries like 
banks, insurance companies, transportation 
organizations, electricity generating companies, 
hospitals, passenger transport and railways, 
hotels, road maintenance, educational 
institutions, road lighting, canteens, port trusts 
and several other service organizations. 
What is Operating Costing?
• The costing method applied in these 
industries is known as ‘Operating Costing’. 
According to the Institute of Cost and 
Management Accountants [UK] operating 
costing is, ‘that form of operating costing 
which applies where standardized services are 
provided either by an undertaking or by a 
service cost center within an undertaking’. 
Nature of Operating Costing
• The main objective of operating costing is to 
compute the cost of the services offered by the 
organization. 
• For doing this, it is necessary to decide the unit of 
cost in such cases. The cost units vary from 
industry to industry. For example, in goods 
transport industry, cost per ton kilometer is to be 
ascertained while in case of passenger transport, 
cost per passenger kilometer is to be computed. 
• The next step is to collect and identify various 
costs under different headings. The headings 
used are, 
• Fixed or standing charges
• Semi-?xed or maintenance charges
• Variable or running charges.
• One of the important features of operating 
costing is that mostly such costs are ?xed in 
nature. For example, in case of passenger 
transport organization, most of the costs are ?xed 
while few costs like diesel and oil are variable and 
dependent on the kilometers run.