Service costing – CA Inter Cost and Management Accounting Study Material is designed strictly as per the latest syllabus and exam pattern.

## Service costing – CA Inter Costing Study Material

Question 1.

What do you understand by Service costing? How are composite units computed? [CA Inter Nov 2009, Nov 2012, 4 Marks]

Answer:

Service Costing:

Internal: The service costing is required for in-house services provided by a service cost centre to other responsibility centres as support services. Examples of support services are Canteen and hospital for staff, Boiler house for supplying steam to production departments, Captive Power generation unit, operation of fleet of vehicles for transport of raw material to factory or distribution of finished goods to the market outlets, IT department services used by other departments, research & development, quality assurance, laboratory etc.

External: When services are offered to outside customers as a profit centre in consonance with organisational objectives as an output like goods or passenger transport service provided by a transporter, hospitality services provided by a hotel, provision of services by financial institutions, insurance and IT companies etc.

In both the situation, all costs incurred are collected, accumulated for a certain period or volume, recorded in the cost accounting system and then expressed in terms of a cost unit of service.

Computation of composite units:

When two measurement units are combined together to know the cost of service or operation, it is called Composite units. Examples of Composite units are Ton- km., Quintal- km, Passenger-km., Patient-day etc.

Composite unit may be computed in two ways.

- Absolute (Weighted Average) basis.
- Commercial (Simple Average) basis.

In both bases of computation of service cost unit, weightage is also given to qualitative factors rather quantitative (which are directly related with variable cost elements) factors alone.

Question 2.

How Service costing is different from the Product costing. [CA Inter MTP]

Answer:

Service costing differs from product costing (such as job or process costing) in the following ways due to some basic and peculiar nature.

- Unlike products, services are intangible and cannot be stored, hence, there is no inventory for the services.
- Use of Composite cost units for cost measurement and to express the volume of outputs.
- Unlike a product manufacturing, employee (labour) cost constitutes a major cost element than material cost.
- Indirect costs like administration overheads are generally have a significant proportion in total cost of a service as unlike manufacturing sector, service sector heavily depends on support services and traceability of costs to a service may not economically feasible.

Question 3.

State the unit of cost for the following industries:

(a) Transport

(b) Power

(c) Hotel

(d) Hospital [CA Inter Nov 2008, 2 Marks]

Answer:

Industry | Unit of Cost |

(a) Transport | Passenger – km. (in public transportation) Quintal – km., or Ton – km. (in goods carriage) |

(b) Power | Kilowatt – hour (kWh) |

(c) Hotel | Guest Days or Room Days |

(d) Hospital | Patient per day, room per day or per bed, per operation etc. |

Question 4.

Describe Composite Cost unit as used in Service Costing and discuss the ways of computing it. [CA Inter Nov 2019, 5 Marks]

Answer:

Composite Cost Unit:

When two measurement units are combined together to know the cost of service or operation, it is called composite cost units. For example, a public transportation undertaking would measure the operating cost per passenger per kilometre.

Examples of Composite units are Ton- km., Quintal- km, Passenger-km., Patient-day etc.

Composite unit may be computed in two ways:

(i) Absolute (Weighted Average) basis: It is summation of the products of qualitative and quantitative factors. For example, to calculate absolute Ton-Km for a goods transport is calculated as follows:

Σ (Weight Carried × Distance)_{1} + (Weight Carried × Distance)_{2} + ………….. + (Weight Carried × Distance)_{n}

(ii) Commercial (Simple Average) basis: It is the product of average qualitative and total quantitative factors. For example, in case of goods transport, Commercial Ton-Km is arrived at by multiplying total distance km., by average load quantity.

Σ (Distance_{1} + Distance_{2} + ………………… + Distance_{n}) × (W_{1} + W_{2} + ……. + W_{n}/n)

In both bases of computation of service cost unit, weightage is also given to qualitative factors rather quantitative (which are directly related with variable cost elements) factors alone.

Question 5.

Distinguish between Absolute ton-kms and Commercial ton-kms. [CA Inter Nov 2006, 2 Marks]

Answer:

Absolute tons-kms are the sum total of tons-kms arrived at by multiplying various distances by respective load quantities carried.

Commercial tons-kms are arrived at by multiplying total distance kms by average load quantity.

Question 6.

What do you understand by Build-Operate-Transfer (BOT) approach in Service Costing? How is the Toll rate computed? [CA Inter July 2021, 5 Marks]

Answer:

Build-Operate-Transfer (BOT): BOT is an option for the government to outsource the public projects to private sectors. With BOT, the private sector designs, finances, constructs and operate the facility and eventually, after specified concession period, the ownership is transferred to government. Therefore, BOT can be seen as a developing technique for infrastructure projects by making them amenable to private sector participation.

Toll rate: Toll rate should have direct relation with the benefits that the road users would gain from its improvement. The benefits to road users are likely to be in terms of fuel savings, improvement in travel time and good riding quality.

No. of Vehicles User fee = Total distance × toll rate per km

Note: User fee will rounded off to nearest multiple of ₹ 5.

**Costing of Transport Services**

Question 1.

A Mineral is transported from two mines-‘A’ and ‘B’ and unloaded at plots at Railway Station. Mine A is at a distance of 10 kms. and B is at a distance of 15 kms. from railhead plots. A fleet of lorries of 5 tonne carrying capacity is used for the transport of mineral from the mines. Records reveal that the lorries average a speed of 30 kms. per hour, when running and regularly take 10 minutes to unload at the railhead. At mine ‘A’ loading time averages 30 minutes per load while at mine ‘B’ loading time averages 20 minutes per load. Drivers’ wages, depreciation, insurance and taxes are found to cost ₹ 9 per hour operated. Fuel, oil, tyres, repairs and maintenance cost ₹ 1.20 per km.

Draw up a statement, showing the cost per tonne-kilometer of carrying mineral from each mine. [CA Inter Nov. 2000, 8 Marks]

Answer:

Statement showing cost per ton-km of carrying mineral from each time:

Working Notes:

Question 2.

A transport company has a fleet of three trucks of 10 tonnes, capacity each plying in different directions for transport of customers’ goods. The trucks run loaded with goods and return empty. The distance travelled, number of trips made and the load carried per day by each truck are as under:

The analysis of maintenance cost and the total distance travelled during the last two years is as under:

Year | Total distance travelled | Maintenance Cost (₹) |

1 | 1,60,200 | 46,050 |

2 | 1,56,700 | 45,175 |

The following are the details of expenses for the year under review:

Diesel | ₹ 10 per litre. Each litre gives 4 km per litre of diesel on an average. |

Driver’s salary | ₹ 2,000 per month |

Licence and taxes | ₹ 5,000 per annum per truck |

Insurance | ₹ 5,000 per annum for all the three vehicles |

Purchase Price per truck | ₹ 3,00,000, Life 10 years. Scrap value at the end of life is ₹ 10,000 |

Oil and sundries | ₹ 25 per 100 km run. |

General Overhead | ₹ 11,084 per annum |

The vehicles operate 24 days per month on an average.

Required:

(i) Prepare an Annual Cost Statement covering the fleet of three vehicles.

(ii) Calculate the cost per km. run.

(iii) Determine the freight rate per tonne km. to yield a profit of 10% on freight. [CA Inter Nov 2001, 10 Marks]

Answer:

(i) Annual Cost Statement of three vehicles:

₹ | |

Diesel [(1,34,784 k.m. ÷ 4 km) × ₹ 10)] (Refer W.N.I) | 3,36,960 |

Oil & sundries [(1,34,784 km. ÷ 100 km.) × ₹ 25] | 33,696 |

Maintenance [(1,34,784 km. × ₹ 0.25) + ₹ 6,000] (Refer W.N.2) | 39,696 |

Drivers’ salary [(₹ 2,000 × 12 months) × 3 trucks] | 72,00 |

License and taxes (₹ 5,000 × 3 trucks) | 15,000 |

Insurance | 5,000 |

Deprecation [(₹ 2,90,000 ÷ 10 years) × 3 trucks] | 87,000 |

General overhead | 11,084 |

Total annual cost | 6,00,436 |

(ii) Cost per km. run:

Cost per kilometer run = \(\frac{\text { Total annual cost of vehicles }}{\text { Total kilometers travelled annually}}\) (Refer W.N.I)

= \(\frac{₹ 6,00,436}{1,34,784 \mathrm{kms}}\) = ₹ 4.4548

(iii) Freight rate per tonne km (to yield a profit of 10% on freight)

Cost per tonner run = \(\frac{\text { Total annual cost of vehicles }}{\text { Total effective tonne kms p.a. }}\) (Refer W.N.I)

= \(\frac{₹ 6,00,436}{5,25,312 \text { tonne } \mathrm{kms}}\) = ₹ 1.143

Freight rate per tonne km. (₹ 1.143 ÷ 0.9) × 1 = ₹ 1.27

Working Notes:

1. Total kilometre travelled and tonnes kilometre (load carried) by three trucks in one year:

Total kilometre travelled by three trucks in one year

(468 km. × 24 days × 12 months) = 1,34,784 kms

Total effective tonnes kilometre of load carried by three trucks during one year

(1,824 tonnes km. × 24 days × 12 months) = 5,25,312 tonne kms

2. Fixed and variable component of maintenance cost:

Variable maintenance cost per km = \(\frac{\text { Difference in maintenance cost }}{\text { Difference in distance travelled }}\)

= \(\frac{₹ 46,050-₹ 45,175}{1,60,200 \mathrm{kms}-1,56,700 \mathrm{kms}}\)

= ₹ 0.25

Fixed maintenance cost

= Total maintenance cost-Variable maintenance cost

= ₹ 46,050 – (1,60,200 kms × ₹ 0.25)

= ₹ 6,000

Question 3.

Calculate total passenger kilometres from the following information:

Number of buses 6, number of days operating in a month 25, trips made by each bus per day 8, distance covered 20 kilometres (one side), capacity of bus 40 passengers, normally 80% of capacity utilization. [CA Inter Nov 2007, 2 Marks]

Answer:

Calculation of passenger kilometer:

= 6 buses × 25 days × 8 trips × 2 sides × 20 k.m. × 40 passengers × 80%

= 15,36,000 passenger km

Question 4.

A transport company has been given a 40 kilometre long route to run 5 buses. The cost of each bus is ₹ 6,50,000. The buses will make 3 round trips per day carrying on average 80% passengers of their seating capacity. The seating capacity of each bus is 40 passengers. The buses will run on an average 25 days in a month. The other information for the year 2020-21 are given below:

Garage rent | ₹ 4,000 per month |

Annual repairs and maintenance | ₹ 22,500 each bus |

Salaries of 5 drivers | ₹ 3,000 each per month |

Wages of 5 conductors | ₹ 1,200 each per month |

Manager’s salary | ₹ 7,500 per month |

Road tax, permit fee, etc. | ₹ 5,000 for a quarter |

Office expenses | ₹ 2,000 per month |

Cost of diesel per litre | ₹ 33 |

Kilometre run per litre for each bus | 6 kilometres |

Annual depreciation | 15% of cost |

Annual Insurance | 3% of cost |

You are required to calculate the bus fare to be charged from each passenger per kilometre, if the company wants to earn profits of 331/3 per cent on taking (total receipts from passengers). [CA Inter Nov. 2016, May 2010, 8 Marks]

Answer:

Operating Cost Sheet for the year 2020-21

Working Notes:

1. Total Kilometres to be run during the year 2013-14

= 40 km. × 2 sides × 3 trips × 25 days × 12 months × 5 buses

= 3,60,000 Kilometres

2. Total passenger Kilometres

= 3,60,000 km. × 40 passengers × 80%

= 1,15,20,000 Passenger- km.

Question 5.

The following information relates to a bus operator:

Cost of the bus | ₹ 18,00,000 |

Insurance charges | 3% p.a. |

Manager cum accountant’s salary | ₹ 8,000 p.m. |

Annual Tax | ₹ 50,000 |

Garage Rent | ₹ 2,500 p.m. |

Annual repair & maintenance | ₹ 1,50,000 |

Expected life of the bus | 15 years |

Scrap value at the end of 15 years | ₹ 1,20,000 |

Driver’s salary | ₹ 15,000 p.m. |

Conductor’s salary | ₹ 12,000 p.m. |

Stationary | ₹ 500 p.m. |

Engine oil, lubricants (for 1200 km.) | ₹ 2,500 |

Diesel and oil (for 10 km.) | ₹ 52 |

Commission to driver and conductor (shared equally) | 10% of collections |

Route distance | 20 km long |

The bus will make 3 round trips for carrying on the average 40 passengers in each trip. Assume 15% profit on collections. The bus will work on the average 25 days in a month.

Calculate fare for passenger-km [CA Inter Nov 2013, 8 Marks]

Answer:

Total distance = 3 trips × 2 × 20 k.m. × 25 days = 3,000 k.m.

Total Passenger-km. = 3,000 km × 40 passengers = 1,20,000 Passenger-k.m.

Statement showing the Operating Cost per Passenger-km.

Working Notes:

Total costs before commission on collection and net profit is ₹ 90,350.

Now, the commission on collection to driver and conductor is 10% of collection and Profit is 15% of collection.

Therefore, total cost of ₹ 90,350 is 75% (i.e. 100% – 10% – 15%) of total collection.

So, total collection will be ₹ 1,20,466,67 (₹ 90,350 ÷ 75%).

Therefore, total commission on collection = 10% × ₹ 1,20,466.67 = ₹ 12,046.67

Driver’s share= 50% × ₹ 12,046.67 = 6,023.34

Conductor’s share = 50% × ₹ 12,046.67 = 6,023.33

Profit on collection = ₹ 1,20,466.67 × 15% = ₹ 18,070

Fare per Passenger-km. = \(\frac{\text { Total Collection }}{\text { Total Passenger }-\mathrm{km} .}\)

= \(\frac{₹ 1,20,466.67}{1,20,000}\)

= ₹ 1.004 (approx)

Question 6.

A mini-bus, having a capacity oi 32 passengers, Operates between two places – ‘A’ and ‘B\ The distance between the place ‘A’ and place ‘B’ is 30

km. The bus makes 10 round trips in a day for 25 days in a month. On an average, the occupancy ratio is 70% and is expected throughout the year.

The details of other expenses are

₹ | |

Insurance | 15,600 per annum |

Garage Rent | 2,400 per quarter |

Road Tax | 5,000 per annum |

Repairs | 4,800 per quarter |

Salary of operating staff | 7,200 per month |

Tyres and Tubes | 3,600 per quarter |

Diesel: (one litre is consumed for every 5 km) | 13 per litre |

Oil and Sundries | 22 per 100 km run |

Depreciation | 68,000 per annum |

Passenger tax @ 22% on total taking is to be levied and bus operator requires a profit of 25% on total taking.

Prepare operating cost statement on the annual basis and find out the cost per passenger kilometer and one way fare per passenger [CA Inter May 2015, 8 Marks]

Answer:

Operating Cost Statement

Calculation of Cost per passenger kilometre and one way fare per passenger:

Cost per Passenger-km. = \(\frac{\text { Total Operating Cost }}{\text { Total Passenger }-\mathrm{km} .}\)

= \(\frac{₹ 7,25,800}{40,32,000}\)

= 0.18

One way fare per Passenger = \(\frac{\text { Total Takings }}{\text { Total Passenger }-\mathrm{km} .}\) × 30 km

= \(\frac{₹ 13,69,434}{40,32,000}\) × 30 km

= ₹ 10.20

Working Notes:

1. Let total taking be X.

Total takings = Total operating cost + Passenger tax + Profit

So, X = ₹ 7,25,800 + 0.22 X + 0.25X

or, X – 0.47 X = ₹ 7,25,800

X = ₹ 13,69,434

Therefore, Passenger tax will be ₹ 3,01,275 (i.e. ₹ 13,69,434 × 0.22) and profit will be ₹ 3,42,359 (i.e. ₹ 13,69,434 × 0.25).

2. Total Kilometres to be run during the year

= 30 km. × 2 sides × 10 trips × 25 days × 12 months

= 1,80,000 Kilometres

3. Total passenger Kilometres

= 1,80,000 km. × 32 passengers × 70%

= 40,32,000 Passenger- km

Question 7.

M/s XY Travels has been given a 25 km. long route to run an air- conditioned Mini Bus. The cost of bus is ₹ 20,00,000. It has been insured @3% premium per annum while annual road tax amounts to ₹ 36,000. Annual repairs will be ₹ 50,000 and the bus is likely to last for 5 years. The driver’s salary will be ₹ 2,40,000 per annum and the conductor’s salary will be ₹ 1,80,000 per annum in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Office and administration overheads will be ₹ 18,000 per annum. Diesel and oil will be ₹ 1,500 per 100 km. The bus will make 4 round trips carrying on an average 40 passengers on each trip.

Assuming 25% profit on takings and considering that the bus will run on an average 25 days in a month, you are required to:

(i) prepare operating cost sheet (for the month)

(it) Calculate fare to be charged per passenger km. [CA litter Nov. 20/8. 10 Marks]

Answer:

Total distance – 4 trips × 2 × 25 k.m. × 25 days × 12 months = 60,000 k.m.

Total Passenger-km. = 60,000 kms × 40 passengers = 24,00,000 passenger-k.m.

(i) Statement showing the Operating Cost per Passenger-km.

(ii) Fare per passenger-k.m. = \(\frac{\text { Total Takings }}{\text { Total Passenger }-\mathrm{km} .}\)

= \(\frac{₹ 33,60,000}{24,00,000}\)

= ₹ 1.40

Working Notes:

Total costs before commission and profit is ₹ 21,84,000.

Now, the commission is 10% of takings and Profit is 25% of takings.

Therefore, the total cost of ₹ 21,84,000is 65% (i.e. 100% -10% – 25%) of total takings.

So, total takings will be ₹ 33,60,000 (₹ 21,84,000 ÷ 65%).

Therefore, total commission on takings = 10% × ₹ 33,60,000 = ₹ 3,36,000

Driver’s share= 50% × ₹ 3,36,000,= 1,68,000

Conductor’s share = 50% × ₹ 3,36,000 = 1,68,000

Profit on collection = ₹ 33,60,000 × 25% = ₹ 8,40,000

Passenger km = 60,000 × 40 passenger = 24,00,000.

Question 8.

X Ltd. distributes its goods to a regional dealer using single lorry. The dealer premises are 40 kms away by road. The capacity of the lorry is 10 tonnes. The lorry makes the journey twice a day fully loaded on the outward journey and empty on return journey. The following information is available:

Diesel Consumption | 8 km per litre |

Diesel Cost | ₹ 60 per litre |

Engine Oil | ₹ 200 per week |

Driver’s Wages (fixed) | ₹ 2500 per week |

Repairs Garage Rent | ₹ 600 per week |

Cost of Lorry (excluding cost of tyres) | ₹ 800 per week |

Life of Lorry | ₹ 9,50,000 |

Insurance | ₹ 18,200 per annum |

Cost of Tyres | ₹ 52,500 |

Life of Tyres | 25,000 kms |

Estimated sale value of the lorry at the end of its life is | ₹ 1,50,000 |

Vehicle License Cost | ₹ 7,800 per annum |

Other Overhead Cost | ₹ 41,600 per annum |

The lorry operates on a 5 day week.

Required:

(i) A statement to show the total cost of operating the vehicle for the four week period analysed into Running cost and Fixed cost.

(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in a year) [CA Inter May 2019, 10 Marks]

Answer:

Total distance = 2 trips × 2 × 40 k.m. × 5 days ×4 weeks = 3,200 k.m.

Total tonne-km. = 2 trips × 40 k.m. × 5 days × 4 weeks × 10 tonnes = 16,000 tonne-kms

Note: The lorry was fully loaded only on outward journey and it is empty on return journey.

(i) Statement showing Operating Cost of vehicle for the 4 week period

(ii) Calculation of vehicle operating cost:

Operating cost per km = \(\frac{\text { Total Cost }}{\text { Total Kilometers }}\)

= \(\frac{₹ 68,320}{3,200}\) = ₹ 21.35

Operating cost per Tonne-km = \(\frac{\text { Total Cost }}{\text { Total Tonne-kms }}\)

= \(\frac{₹ 68,320}{16,00}\) = ₹ 21.35

Question 9.

SEZ Ltd. built a 120 km. long highway and now operates a toll road to collect tolls. The company has invested ? 900 crore to build the road and has estimated that a total of 120 crore vehicles will be using the highway during the 10 years toll collection tenure. The other costs for the month of “June 2020” are as follows:

(i) Salary:

- Collection personnel (3 shifts and 5 persons per shift) ₹ 200 per day per person.
- Supervisor (3 shifts and 2 persons per shift) – ₹ 350 per day per person.
- Security personnel (2 shifts and 2 persons per shift) – ₹ 200 per day per person
- Toil Booth Manage; (3 shifts anti 1 person per shift) – ₹ 500 per day per person,

(ii) Electricity – ₹ 1,50,000

(iii) Telephone – ₹ 1,00,000

(iv) Maintenance cost – ₹ 50 lakhs

(v) The company needs 30% profit over total cost.

Required:

(1) Calculate cost per kilometre.

(2) Calculate the toll rate per vehicle. [CA Inter Nov 2G20, 10 Marks]

Answer:

Statement of Cost for the month June, 2020

1. Calculation of cost per kilometer:

= \(\frac{\text { Total Cost }}{\text { Total } \mathrm{Km}}\) = \(\frac{₹ 8,04,72,000}{120 \mathrm{kms}}\) = ₹ 6,70,600

2. Calculation of toll rate per vehicle:

= \(\frac{\text { Total Cost }+25 \% \text { profit }}{\text { Vehicles per month }}\) = \(\frac{₹ 8,04,72,000+₹ 2,41,41,600}{1,00,00,000 \text { vehicles }}\) = ₹ 10.46

Working:

Vehicles per month = \(\frac{\text { Total estimated vehicles }}{10 \text { years }}\) ÷ 12 months

= \(\frac{120 \text { crores }}{10 \text { years }}\) ÷ 12 months = 1 crore vehicles

Question 10.

EPS is a Public School having 25 buses each plying in different directions for the transport of its school students. In view of large number of students availing of the bus service, the buses work two shifts daily both in the morning and in the afternoon. The buses are garaged in the school. The workload of the students has been so arranged that in the morning, the first trip picks up senior students and the second trip plying an hour later picks up junior students. Similarly, in the afternoon, the first trip takes the junior students and an hour later the second trip takes the senior students home.

The distance travelled by each bus, one way is 16 km. The school works 24 days in a month and remains closed for vacation in May and June. The bus fee, however, is payable by the students for all the 12 months in a year.

The details of expenses for the year 2020-21 are as under:

Driver’s salary payable for all the 12 in months. | ₹ 5,000 per month per driver. |

Cleaner’s salary payable for all the 12 months (one cleaner has been employed for every five buses). |
₹ 3,000 per month per cleaner |

Licence Fees, Taxes etc. | ₹ 2,300 per bus per annum |

Insurance Premium | ₹ 15,600 per bus per annum |

Repairs and Maintenance | ₹ 16,400 per bus per annum |

Purchase price of the bus | ₹ 16,50,000 each |

Life of the bus | 16 each |

Scrap value | ₹ 1,50,000 |

Diesel Cost | ₹ 18.50 per litre |

Each bus gives an average of 10 km. per litre of diesel. The seating capacity of each bus is 60 students. The seating capacity is fully occupied during the whole year. The school follows differential bus fees based on distance travelled as under:

Students picked up and dropped within the range of distance from the school-Bus fee-Percentage of students availing this facility

4 km | 25% of Full | 15% |

8 km | 50% of Full | 30% |

16 km | Full | 55% |

Ignore interest. Since the bus fees has to be based on average cost, you are required to

(i) Prepare a statement showing the expenses of operating a single bus and the fleet of 25 buses for a year.

(ii) Work out average cost per student per month in respect of:

(a) Students coming from a distance of upto 4 km. from the school.

(b) Students coming from a distance of upto 8 km. from the school; and

(c) Students coming from a distance of upto 16 km. from the school. [CA Inter May 2004, 10 Marks]

Answer:

(i) Statement of EPS Public School showing the expenses of operating a single bus and the fleet of 25 buses for a year

(ii) Average cost per student per month in respect of students coming from a distance of:

(a) 4 km. from the school [₹ 2,52,082/(354 students × 12 months)] (Refer W.N.2) | ₹ 59.34 |

(b) 8 km. from the school (₹ 59.34 × 2) | ₹ 118.68 |

(c) 16 km. from the school (₹ 59.34 × 4) | ₹ 237.36 |

Working Notes:

1. Calculation of diesel cost per bus:

No. of trips made by a bus each day | 4 |

Distance travelled in one trip both ways (16 km. × 2 trips) | 32 km. |

Distance travelled per day by a bus (32 km. × 4 shifts) | 128 km. |

Distance travelled during a month (128 km. × 24 days) | 3,072 km. |

Distance travelled per year (3,072 km. × 10 months) | 30,720 km. |

No. of litres of diesel required per bus per year (30,720 km. ÷ 10 km.) | 3,072 litres |

Cost of diesel per bus per year (3,072 litres × ₹ 18.50) | ₹ 56,832 |

2. Calculation of number of students per bus:

Bus capacity of 2 trips (60 students × 2 trips) | 120 students |

1/4th fare students (15% × 120 students) | 18 students |

½ fare 30% students (equivalent to 1/4th fare students) | 72 students |

Full fare 5596 students (equivalent to 1/4th fare students) | 264 students |

Total 1/4th fare students | 354 students |

Question 11.

Paras Travels provides mini buses to an IT company for carrying its employees from home to office and dropping back after office hours. It runs a fleet of 8 mini buses for this purpose. The buses are parked in a garage adjoining the company’s premises. Company is operating in two shifts (one shift in the morning and one shift in the afternoon). The distance travelled by each mini bus one way is 30 kms. The company works for 20 days in a month. The seating capacity of each mini bus is 30 persons. The seating capacity is normally 80% occupied during the year. The details of expenses incurred for a year are as under:

Driver’s salary | ₹ 20,000 per driver p.m. |

Lady attendant’s salary (mandatorily required for each mini bus) | ₹ 10,000 per attendant p.m. |

Cleaner’s salary (One cleaner for 2 mini buses) | ₹ 15,000 per cleaner p.m. |

Diesel (Avg. 8 kms per litre) | ₹ 80 per litre |

Insurance charges (per annum) | 2% of Purchase Price |

License fees and taxes | ₹ 5,080 per mini bus p.m. |

Garage rent paid | ₹ 24,000 p.m. |

Repair & maintenance including engine oil and lubricants (for every 5,760 kms) | ₹ 2,856 per mini bus |

Purchase Price of mini bus | ₹ 15,00,000 each |

Residual life of mini bus | 8 Years |

Scrap value per mini bus at the end of residual life | ₹ 3,00,000 |

Paras Travels charges two types of fare from the employees. Employees coming from a distance of beyond 15 kms away from the office are charged double the fare which is charged from employees coming from a distance of upto 15 kms. away from the office. 50% of employees travelling in each trip are coming from a distance beyond 15 kms. from the office. The charges are to be based on average cost.

You are required to:

(i) Prepare a statement showing expenses of operating a single mini bus for a year.

(ii) Calculate the average cost per employee per month in respect of:

(a) Employees coming from a distance upto 15 kins, from the office.

(b) Employees coming from a distance beyond 15 kms. from the office. [CA Inter Dec. 2021, 10 Marks]

Answer:

(i) Statement showing operating cost for a single Mini-Bus per year

Notes:

1. Total Distance Travelled = 4 trip × 2 shifts × 30 km. × 20 days × 12 months

= 57,600 kms.

2. Garage rent paid i.e. ₹ 24,000 are assumed to be paid for all 8 buses.

(ii) Average cost per employee per month in respect of employees coming from a distance:

(a) upto 15 kms. from the office [₹ 1,10,960/72 employees] |
₹ 1,541.11 |

(b) beyond 15 kms. from the office [₹ 1,541.11 × 2] | ₹ 3,082.22 |

Working Note: Calculation of equivalent number of employees:

Seating capacity of 2 shifts (morning + afternoon) [30 employees × 2 shifts] |
60 employees |

Occupancy (80%) | 48 employees |

Half fare employees (50%) | 24 employees |

Full fare employees (50% but equivalent to half fare employees) [48 employees × 50% × 2) |
48 employees |

Total half fare employees | 72 employees |

Question 12.

A transport company has 20 vehicles, the capacities are as follows:

No. of Vehicles | Capacity per vehicle |

5 | 9 MT |

6 | 12 MT |

7 | 15 MT |

2 | 20 MT |

The company provides the goods transport service between stations ‘A’ to station ‘B’ Distance between these stations is 100 kilometers. Each vehicle makes one round trip per day on an average. Vehicles are loaded with an average of 90% of capacity at the time of departure from station ‘A’ to station ‘B’ and at the time of return back loaded with 70% of capacity. 10% of vehicles are laid up for repairs every day. The following information is related to the month of August, 2020:

Salary of Transport Manager | ₹ 60,000 |

Salary of 30 drivers | ₹ 20,000 each driver |

Wages of 25 Helpers | ₹ 12,000 each helper |

Loading and unloading charges | ₹ 850 each trip |

Consumable stores (depends on running of vehicles) | ₹ 1,35,000 |

Insurance (Annual) | ₹ 8,40,000 |

Road Licence (Annual) | ₹ 6,00,000 |

Cost of Diesel per litre | ₹ 78 |

Kilometres run per litre each vehicle | 5 Km. |

Lubricant, Oil etc. | ₹ 1,15,000 |

Cost of replacement of Tyres, Tubes, other parts etc. (on running basis) | ₹ 4,25,000 |

Garage rent (Annual) | ₹ 9,00,000 |

Routine mechanical services | ₹ 3,00,000 |

Electricity charges (for office, garage and washing station) | ₹ 55,000 |

Depreciation of vehicles (on time basis) | ₹ 6,00,000 |

There is a workshop attached to transport department which repairs these vehicles and other vehicles also. 40 per cent of transport manager’s salary is debited to the workshop. The transport department has been apportioned ₹ 88,000 by the workshop during the month. During the month operation was for 23 days.

You are required:

(i) Calculate per ton-km operating cost

(ii) Determine the freight to be charged per ton-km, if the company earned a profit of 25 per cent on freight. [CA lute, Nov. 2020. RTP]

Answer:

(i) Operating Cost Sheet for the month of August, 2020

₹ | |

A. Fixed Charges: | |

Manager’s salary (₹ 60,000 × 6096) | 36,000 |

Drivers’ Salary (₹ 20,000 ₹ 30 drivers) | 6,00,000 |

Helpers’ wages (₹ 12,000 ₹ 25 helpers) | 3,00,000 |

Insurance (₹ 8,40,000 4 ÷ 12 months) | 70,000 |

Road licence (₹ 6,00,000 ÷ 12 months) | 50,000 |

Garage rent (₹ 9,00,000 ÷ 12 months) | 75,000 |

Routine mechanical services | 3,00,000 |

Electricity charges (for office, garage and washing station) | 55,000 |

Depreciation of vehicles | 6,00,000 |

Apportioned workshop expenses | 88,000 |

Total (A) | 21,74,000 |

B. Variable Charges: | |

Loading and unloading charges (Working Note 1) | 7,65,000 |

Consumable Stores | 1,35,000 |

Cost of diesel (Working Note 2) | 14,04,000 |

Lubricant, Oil etc. | 1,15,000 |

Replacement of Tyres, Tubes & other parts | 4,25,000 |

Total (B) | 28,44,000 |

C. Total Cost (A + B) | 50,18,000 |

D. Total Ton-Kms. (Working Note 3) | 9,43,200 |

E. Cost per ton-km. (C ÷ D) | 5.32 |

(ii) Calculation of Chargeable Freight

Cost per ton km. | ₹ 5.32 |

Add: Profit @ 25% on freight or 33% on | ₹ 1.77 |

Chargeable freight per ton-km. | ₹ 7.09 |

Working Notes:

1. Wages paid to loading and unloading labours

= Numbers of vehicles available per day × No. of days × trips × wages per trip

= (20 vehicles × 90%) × 25 days × 2 trips × ₹ 850

= 18 × 25 × 2 × 850

= ₹ 7,65,000

2. Cost of Diesel:

Distance covered by each vehicle during August, 2020

= 100 k.m. × 2 × 25 days × 90% = 4,500 km.

Consumption of diesel = \(\frac{4,500 \mathrm{~km} \times 20 \text { vehicles }}{5 \mathrm{~km}}\) = 18,000 litres

Cost of diesel = 18,000 litres × ₹ 78 = ₹ 14,04,000.

3. Calculation of total ton-km:

Total Ton-Km. = Total Capacity × ₹ Distance covered by each vehicle × Average Capacity Utilisation ratio.

= [(5 × 9 MT) + (6 × 12 MT) + (7 × 15 MT) + (2 × 20 MT)] × 4,500 km × \(\left(\frac{70 \%+90 \%}{2}\right)\)

= (45 + 72 + 105 + 40) × 4,500 km × 80%

= 262 × 4,500 × 80%

= 9,43,200 ton-km

Question 13.

A lorry starts with a load of 24 tonnes of goods from station A. It unloads 10 tonnes at station B and rest of goods at station C. It reaches back directly to station A after getting reloaded with 18 tonnes of goods at station C. The distance between A to B, B to C and then from C to A are 270 kms, 150 kms and 325 kms respectively. Compute ‘Absolute tonnes kms’ and ‘Commercial tonnes-kms’. [CA Inter June, 2009, 2 Marks]

Answer:

Absolute tonnes kms:

= tonnes × km

= 24 tonnes × 270 kms + 14 tonnes × 150 kms

= 14,430 tonnes kms

Commercial tonnes kms:

= Average load × total kms travelled

= \(\left[\frac{24+14+18}{3}\right]\) tonnes × 745 kms

= 13,906.67 tonnes km

Question 14.

Harry Transport Service is a Delhi based national goods transport service provider, owning five trucks for this purpose. The cost of running and maintaining these trucks are as follows:

Diesel cost | ₹15 per km. |

Engine oil | ₹ 4,200 for every 14,000 km. |

Repair and maintenance | ₹ 12,000 for every 10,000 km. |

Driver’s salary | ₹ 20,000 per truck per month |

Cleaner’s salary | ₹ 7,000 per truck per month |

Supervision and other general expenses | ₹ 15,000 per month |

Cost of loading of goods | ₹ 200 per Metric Ton (MT) |

Each truck was purchased for Rs. 20 lakhs with an estimated life of 7,20,000 km. During the next month, it is expecting 6 bookings, the details of which are as follows:

Required:

(i) Calculate the total absolute Ton-km for the next month.

(ii) Calculate the cost per ton-km. [CA Inter MTP]

Answer:

(i) Calculate the total absolute Ton-km for the next month.

Total absolute Ton-km = 1,89,115 ton-km

(ii) Calculation of cost per ton-km:

Question 15.

GTC has a lorry of 6-ton carrying capacity. It operates lorry service from city A to city B for a particular vendor. It charges ₹ 2,400 per ton from city ‘A’ to city ‘B’ and ₹ 2,200 per ton for the return journey from city ‘B’ to city ‘A’. Goods are also delivered to an intermediate city *C’ but no extra charges are billed for unloading goods in-between destination city and no concession in rates is given for reduced load after unloading at intermediate city. Distance between the city ‘A’ to ‘B* is 300 km and distance from city ‘A’ to ‘C’ is 140 km.

In the month of January, the truck made 12 journeys between city ‘A’ and city ‘B’. The details of journeys are as follows:

Outward journey | No. of journeys | Load (in ton) |

‘A’ to ‘B’
‘X to C’ C’ to ‘B’ |
10
2 2 |
6
6 4 |

Return journey | No. of journeys | Load (in ton) |

B’ to ‘A’
‘B’ to ‘A’ ‘B’ to ‘C’ ‘C’ to ‘A’ |
5
6 1 1 |
8
6 6 0 |

Annual fixed costs and maintenance charges are ₹ 6,00,000 and ₹ 1,20,900 respectively. Running charges spent during the month of January are ₹ 2,94,400 (includes ₹ 12,400 paid as penalty for overloading).

You are required to:

(i) Calculate the cost as per

(a) Commercial ton-kilometre,

(b) Absolute ton-kilometre

(ii) Calculate Net Profit/ loss for the month of January. [ICAIModule]

Answer:

(i) Calculation of Total Monthly cost for running truck:

(a) Cost per commercial ton-km. = \(\frac{₹ 3,42,000}{44,856 \text { ton-km }}\) = ₹ 7.62

(Refer W.N.1)

(b) Cost per absolute ton-km. = \(\frac{₹ 3,42,000}{44,720 \text { ton-km }}\) = ₹ 7.65

(Refer W.N.2)

(ii) Calculation of Net Profit/Loss for the month of January:

Working Notes:

1. Calculation of Commercial Ton-km:

2. Calculation of Absolute Ton-km:

Question 16.

In order to develop tourism, ABCL airline has been given permit to operate three flights in a week between X and Y cities (both side). The airline operates a single aircraft of 160 seats capacity. The normal occupancy is estimated at 60% throughout the year of 52 weeks. The one-way fare is ₹ 7,200. The cost of operation of flights are:

Fuel cost (variable) | ₹ 96,000 per flight |

Food served on board on non- chargeable basis | ₹ 125 per passenger |

Commission | 5% of fare applicable for all booking |

Fixed cost: | |

Aircraft lease | ₹ 3,50,000 per flight |

Landing Charges | ₹ 72,000 per flight |

Required:

(i) Calculate the net operating income per flight.

(ii) The airline expects that its occupancy will increase to 108 passengers per flight if the fare is reduced to ₹ 6,720.

Advise whether this proposal should be implemented or not. [CA Inter May 2005, 5 Marks]

Answer:

(i) No. of passengers 160 seats × 60% = 96 passengers

Calculation of Net operating income flight:

(ii) If the fare is reduced to ₹ 6,750 per passenger

There is an increase in contribution by ₹ 31,332. Hence the proposal is acceptable.

Question 17.

Navya LMV Pvt. Ltd, operates cab/car rental service in Delhi NCR. It provides its service to the offices of Noida, Gurugram and Faridabad. At present it operates CNG fuelled cars but it is also considering to upgrade these into Electric Vehicle (EV). The details related with the owning of CNG & EV propelled cars are as tabulated below:

CNG Car | EV Car | |

Car purchase price (₹) | 9,20,000 | 15,20,000 |

Govt. subsidy on purchase of car (₹) | – | 1,50,000 |

Life of the car | 15 years | 10 years |

Residual value (₹) | 95,000 | 1,70,000 |

Mileage | 20 km/kg | 240 km per charge |

Electricity consumption per full charge | – | 30Kwh |

CNG cost per Kg () | 60 | – |

Power cost per Kwh (₹) | – | 7.60 |

Annual Maintenance cost (₹) | 8,000 | 5,200 |

Annual insurance cost (₹) | 7,600 | 14,600 |

Tyre replacement cost in every 5 year (₹) | 16,000 | 16,000 |

Battery replacement cost in every 18 year (₹) | 12.000 | 5,40,000 |

Apart from the above, the following are the additional information:

Average distance covered by a car in a month | 1,500 km |

Driver’s salary (₹ ) | 20,000 p.m |

Garage rent per car (₹ ) | 4,500 p.m |

Share of Office & Administration cost per car | (₹ ) 1,500 p.m |

Required:

Calculate the operating cost of vehicle per month per car for both CNG & EV options. [CA Inter RTP May 2022]

Answer:

Calculation of Operating cost per month

Working Notes:

1. Calculation of Depreciation per month:

CNG Car | EV Car | |

A Car purchase price | ₹ 9,20,000 | ₹ 15,20,000 |

B Less: Govt, subsidy | – | (₹ 1,50,000) |

C Less: Residual value | (₹ 95,000) | (1,70,000) |

D Depreciable value of car [A-B-C] | ₹ 8,25,000 | ₹ 12,00,000 |

E Life of the car | 15 years | 10 years |

F Annual depreciation [D ÷ E] | ₹ 55,000 | ₹ 1,20,000 |

G Depreciation per month [F ÷ 12] | ₹ 4,583.33 | ₹ 10,000 |

2. Fuel/ Electricity consumption cost per month:

CNG Car | EV Car | |

A Average distance covered in month | 1,500 Km | 1,500 Km |

B Mileage | 20 Km | 240 Km |

C Qty. of CNG/ Full charge required [A ÷ B] | 75 kg. | 6.25 |

D Electricity Consumption [C × 30 kwh] | – | 18.75 |

E Cost of CNG per kg | ₹ 60 | – |

F Power cost per Kwh | – | ₹ 7.60 |

G CNG Cost per month [C × E] | ₹ 4,500 | – |

H Power cost per month [D × F] | – | ₹ 1,425 |

3. Amortised cost of Tyre replacement:

CNG Car | EV Car | |

A Life of vehicle | 15 years | 10 years |

B Replacement interval | 5 years | 5 years |

C No. of time replacement required | 2 times | 1 time |

D Cost of tyres for each replacement | ₹ 16,000 | ₹ 16,000 |

E Total replacement cost [C × D] | ₹ 32,000 | ₹ 16,000 |

F Amortised cost per year [E ÷ A] | ₹ 2,133.33 | ₹ 1,600 |

G Cost per month [F ÷ 12] | ₹ 177.78 | ₹ 133.33 |

4. Amortised cost of Battery replacement:

CNG Car | EV Car | |

A Life of vehicle | 15 years | 10 years |

B Replacement interval | 8 years | 8 years |

C No. of time replacement required | 1 time | 1 time |

D Cost of battery for each replacement | ₹ 12,000 | ₹ 5,40,000 |

E Total replacement cost [C × D] | ₹ 12,000 | ₹ 5,40,000 |

F Amortised cost per year [E ÷ A] | ₹ 800 | ₹ 54,000 |

G Cost per month [F ÷ 12] | ₹ 66.67 | ₹ 4,500 |

Question 18.

A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional rates during six off-season months in a year.

During this period, half of the full room rent is charged. The management’s profit margin is targeted at 20% of the room rent. The following are the cost estimates and other details for the year ending on 31st March, 2021:

(i) Occupancy during the season is 80% while in the off-season it is 40%.

(ii) Total investment in the hotel is ₹ 300 lakhs of which 80% relates to Buildings and the balance to Furniture and other Equipment.

(iii) Room attendants are paid ₹ 15 per room per day on the basis of occupancy of rooms in a month.

(iv) Expenses:

- Staff salary (excluding that of room attendants) ₹ 8,00,000
- Repairs to Buildings ₹ 3,00,000
- Laundry Charges ₹ 1,40,000
- Interior Charges ₹ 2,50,000
- Miscellaneous Expenses ₹ 2,00,200

(v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture and other Equipments on straight line method.

(vi) Monthly lighting charges are ₹ 110, except in four months in winter when it is ₹ 30 per room and this cost is on the basis of full occupancy for a month.

You are required to workout the room rent chargeable per day both during the season and the off-season months using the foregoing information (Assume a month to be of 30 days and winter season to be considered as part of off-season). [CA Inter Nov 2019, 10 Marks]

Answer:

Statement of total cost

₹ | |

Staff salary | 8,00,000 |

Repairs to building | 3,00,000 |

Laundry | 1,40,000 |

Interior | 2,50,000 |

Miscellaneous Expenses | 2,00,200 |

Depreciation on Building (₹ 300 Lakhs × 80% × 5%) | 12,00,000 |

Depreciation on Furniture & Equipment (₹ 300 Lakhs × 20% × 15%) | 9,00,000 |

Room attendant’s wages/₹ 15 per Room Day × 43,200 Room Days) | 6,48,000 |

Lighting charges | 1,32,800 |

Total cost
Add: Profit Margin (20% on Room rent or 25% on Cost) |
45,71,000
11,42,750 |

Total Rent to be charged | 57,13,750 |

Calculation of Room Rent per day:

Total Rent/Equivalent Full Room days = ₹ 57,13,750/36,000 = ₹ 158.72

Room Rent during Season – ₹ 158.72

Room Rent during Off season = ₹ 158.72 × 50% = ₹ 79.36

Working Notes:

(i) Total Room days in a year

(ii) Lighting Charges:

It is given that lighting charges is ₹ 110 per month. However, during winter season of four months, it is ₹ 30 per month.

It is also given that peak season is 6 months and off season is 6 months.

Since, a hotel being in a Hill station, winter season will be considered as off season. Hence, the non-winter season of 8 months includes Peak season of 6 months and Off season of 2 months.

Accordingly, the lighting charges are calculated as follows:

Season | Occupancy (Room-days) |

Season & Non-winter – 80% Occupancy | 200 Rooms × 80% × b months × ₹ 110 per month = ₹ 1,05,600 |

Off- season & Non-winter – 40% Occupancy (8 – 6 months) | 200 Rooms × 40% × 2 months × ₹110 per month = ₹ 17,600 |

Off- season & -winter – 40% Occupancy months) | 200 Rooms × 40% × 4 months × ₹ 30 per month = ₹ 9,600 |

Total Lighting charges | ₹ 1,05,600+ ₹ 17,600 + ₹ 9,600 = ₹ 1,32,800 |

Question 19.

Following are the information given by owner of M/s Moonlight Co. running a hotel at Manali. You are requested to advise him regarding the rent to be charged from his customer per day so that he is able to earn 20% profit on cost other than interest.

(i) Staff salaries ₹ 4,00,000.

(ii) The Room Attendant’s salary is ₹ 10 per day. The salary is paid on daily basis and the services of room attendant are needed only when the room is occupied. There is one room attendant for one room.

(iii) Lighting, Heating and Power:

(a) The normal lighting expenses for a room if it is occupied for the whole month is ₹ 250.

(b) Power is used only in winter and normal charge per month if occupied for a room is ₹ 100.

(iv) Repairs to Building ₹ 50,000 per annum.

(v) Linen etc. ₹ 24,000 per annum.

(vi) Sundries ₹ 70,770 per annum.

(vii) Interior decoration and furnishing ₹ 50,000 per annum.

(viii) Cost of Building ₹ 20,00,000, rate of depreciation 5%.

(ix) Other Equipment ₹ 5,00,000, rate of depreciation 10%.

(x) Interest @ 5% may be charged on its investment of ₹ 25,00,000 in the building and equipment.

(xi) There are 200 rooms in the hotel and 90% of the rooms are normally occupied in summer and 40% of the rooms are occupied in winter. You may assume that period of summer and winter is six months each. Normal days in a month may be assumed to be 30. [CA Inter May 2019, 8 Marks]

Answer:

Statement of Total cost:

(₹) | |

Staff salary | 4,00,000 |

Room attendants’ salary (₹ 10 × 46,800 room-days) | 4,68,000 |

Lighting e×penses (₹ 250 × 1,560 room-months) | 3,90,000 |

Power e×penses (₹ 100 × 480 room-months) | 48,000 |

Repairs to building | 50,000 |

Linen | 24,000 |

Sundries Expenses | 70,770 |

Interior decoration and furnishing | 50,000 |

Depreciation on Building (₹ 20 Lakhs × 5%) | 1,00,000 |

Depreciation on other Equipment (₹ 5 Lakhs × 10%) | 50,000 |

Total cost excluding interest | 16,50,770 |

Add: Profit Margin (20% on cost excluding interest) | 3,30,154 |

Add: Interest on investments (₹ 25 Lakhs × 5%) | 1,25,000 |

Total Rent to be charged | 21,05,924 |

Calculation of Room Rent per day:

Total Cost / Equivalent Room days = ₹ 21,05,924 ÷ 46,800 = ₹ 44.99 or ₹ 45

Note: It is assumed that staff salary of ₹ 4,00,000 is per annum.

Working Note: Calculation of Total Room days in a year

Summer (90% occupancy) = 200 Rooms × 90% × 6 months × 30 days

= 32,400 Room Days

Winter (40% Occupancy) =200 Rooms × 40% × 6 months × 30 days

= 14,400 Room Days

Total Room Days = 32,400 + 14,400 = 46,800

Question 20.

A group of ‘Health Care Services’ has decided to establish a Critical Care Unit in a metro city with an investment of f 85 lakhs in hospital equipments. The unit’s capacity shall be of 50 beds and 10 more beds, if required, can be added.

Other information for a year are as under:

₹ | |

Building Rent | 2,25,000 per month |

Manager Salary (Number of Manager-03) | 50,000 per month to each one |

Nurses Salary (Number of Nurses-24) | 18,000 per month to each Nurse |

Ward boy’s Salary (Number of ward boys-24) | 9,000 per month per person |

Doctor’s payment (Paid on the basis of number of patients attended and time spent by them) | 5,50,000 per month |

Food and laundry services (variable) | 39,53,000 |

Medicines to patients (variable) | 22,75,000 per year |

Administrative Overhead | 28,00,000 per year |

Depreciation on equipments | 15% per annum on original cost |

It was reported that for 200 days in a year 50 beds were occupied, for 105 days 30 beds were occupied and for 60 days 20 beds were occupied.

The hospital hired 250 beds at a charge of ₹ 950 per bed to accommodate the flow of patients. However, this never exceeded the normal capacity of 50 beds on any day.

Find out:

(i) Profit per patient day, if hospital charges on an average ₹ 2,500 per day from each patient.

(ii) Break even point per patient day (Make calculation on annual basis) [CA Inter May 2018, 10 Marks]

Answer:

Number of Patient Days

200 days× 50 beds = 10,000

105 days × 30 beds = 3,150

60 days × 20 beds = 1,200

Extra Bed = 250

Total ⇒ 10,000 + 3,150 + 1,200 + 250 = 14,600

Statement of Profitability

Elements of Cost and Revenue | ₹ |

Revenue (14,600 patient days × ₹ 2,500 per day) | 3,65,00,000 |

Variable Costs | |

Food and Laundry Service | 39,53,000 |

Medicines to Patients | 22,75,000 |

Doctor’s Payment (₹ 5,50,000 × 12 months) | 66,00,000 |

Hire Charges of Bed (250 × ₹ 950) | 2,37,500 |

Total Variable Costs | 1,30,65,500 |

Contribution (Revenue-Variable Costs) | 2,34,34,500 |

Fixed Costs | |

Building Rent | 27,00,000 |

Manager’s Salary (₹ 50,000 × 3 × 12) | 18,00,000 |

Nurse’s Salary (₹ 18,000 × 12 × 24) | 51,84,000 |

Ward boy’s Salary (₹ 9,000 × 12 × 24) | 25,92,000 |

Administrative Overheads | 28,00,000 |

Depreciation on Equipment’s | 12,75.000 |

Total Fixed Costs | 1,63,51,000 |

Profit (Contribution Total Fixed Costs) | 70,83,500 |

Profit per patient day = ₹ 70,83,500/14,600 = ₹ 485.17

Contribution (per patient day) = 2,34,34,500/14,600 = ₹ 1,605.10

BEP = ₹ 1,63,51,000/1,605.10 = 10,186.90 or say 10,187 patient days

Notes:

- Higher Charges for extra beds are a semi-variable cost; still, for the sake of convenience it has been considered a variable cost.
- Assumed, the hospital hired 250 beds at a charge of ₹ 950 per bed to accommodate the flow of patients. However, this never exceeded the 10 beds above the normal capacity of 50 beds on any day.
- The fees were paid based on the number of patients attended to and the time spent by them, which on an average worked out to ₹ 5,50,000 p.m.

Question 21.

ABC Health care runs an Intensive Medical Care Unit. For this purpose, it has hired a building at a rent of ₹ 50,000 per month with the agreement to bear the repairs and maintenance charges also.

The unit consists of 100 beds and 5 more beds can comfortably be accommodated when the situation demands. Though the unit is open for patients all the 365 days in a year, scrutiny of accounts for the year 2020 reveals that only for 120 days in the year, the unit had the full capacity of 100 patients per day and for another 80 days, it had, on an average only 40 beds occupied per day. But, there were occasions when the beds were full, extra beds were hired at a charge of ₹ 50 per bed per day. This did not come to more than 5 beds above the normal capacity on any one day. The total hire charges for the extra beds incurred for the whole year amounted to ₹ 20,000.

The unit engaged expert doctors from outside to attend on the patients and the fees were paid on the basis of the number of patients attended and time spent by them which on an average worked out to ₹ 30,000 per month in the year 2020.

The permanent staff expenses and other expenses of the unit were as follows:

₹ | |

2 Supervisors each at a per month salary of: | 5,000 |

4 Nurses each at a per month salary of | 3,000 |

2 Ward boys each at a per month salary of | 1,500 |

Other Expenses for the year were as under: | |

Repairs and Maintenance | 28,000 |

Food supplied to patients | 4,40,000 |

Caretaker and Other services for patients | 1,25,000 |

Laundry charges for bed linen | 1,40,000 |

Medicines supplied | 2,80,000 |

Cost of Oxygen etc. other than directly borne for treatment of patients | 75,000 |

General Administration Charges allocated to the unit | 71,000 |

Required:

(i) What is the profit per patient day made by the unit in the year 2020, if the unit recovered an overall amount of ? 200 per day on an average from each patient.

(ii) The unit wants to work on a budget for the year 2021, but the number of patients requiring medical care is a very uncertain factor. Assuming that same revenue and expenses prevail in the year 2021 in the first instance, work out the number of patient days required by the unit to break even. [CA Inter Jan 2021, 10 Marks]

Answer:

Number of Patient Days

120 days × 100 beds = 12,000

80 days × 40 beds = 3,200

Extra Bed = 400

Total ⇒ 12,000 + 3,200 + 400 = 15,600

(i) Statement of Profitability

₹ | |

Revenue (15,600 patient days × ₹ 200 per day) | 31,20,000 |

Variable Costs: | |

Doctor Fees (₹ 30,000 per month × 12) | 3,60,000 |

Food to Patients (Variable) | 4,40,000 |

Caretaker Other services to patients (Variable) | 1,25,000 |

Laundry charges (Variable) | 1,40,000 |

Medicines (Variable) | 2,80,000 |

Bed Hire Charges (₹ 50 × 400 Beds) | 20,000 |

Total Variable costs | 13,65,000 |

Contribution (Revenue Total Variable Costs) | 17,55,000 |

Fixed Costs: | |

Rent (₹ 50,000 per month × 12) | 6,00,000 |

Supervisor (2 persons × ₹ 5,000 × 12) | 1,20,000 |

Nurses (4 persons × ₹ 3,000 × 12) | 1,44,000 |

Ward Boys (2 persons × ₹ 1500 × 12) | 36,000 |

Repairs (Fixed) | 28,000 |

Cost of Oxygen | 75,000 |

Administration expenses allocated | 71,000 |

Total Fixed Costs | 10,74,000 |

Profit (Contribution Total Fixed Costs) | 6,81,000 |

Profit per patient day = ₹ 6,81,000/15,600 – ₹ 43.65

Contribution (per patient day) = ₹ 17,55,000/15,600 = ₹ 112.50

(ii) BEP = ₹ 10,74,000/₹ 112.50 = 9,546.667 or say 9,547 patient days.

Question 22.

MRSL Healthcare Ltd. has incurred the following expenditure during the last year for its newly launched ‘COVID-19’ Insurance policy:

₹ | |

Office administration cost | 48,00,000 |

Claim management cost | 3,80,000 |

Employees cost | 16,20,000 |

Postage and Logistics | 32,40,000 |

Policy issuance cost | 29,50,000 |

Facilities cost | 46,75,000 |

Cost of marketing of the policy | 1,38,90,000 |

Policy development cost | 35,00,000 |

Policy servicing cost | 96,45,000 |

Sales support expenses | 32,00,000 |

I.T. Cost | ? |

Number of Policy sold: 2,800

Total insured value of policies – ₹ 3,500 Crores

Cost per rupee of insured value – ₹ 0.002 You are required to:

(i) Calculate Total cost for “CGVID-19” Insurance policy segregating the costs into four main activities namely

(a) Marketing and Sales support

(b) Operations

(c) I.T. Cost and

(d) Support functions.

(ii) Calculate Cost per Policy. [CA Inter July 2021, 5 Marks]

Answer:

(i) Statement showing Total cost for “COVTD-19” Insurance Policy

Particulars | ₹ |

Marketing and sales support: | |

Policy development cost | 35,00,000 |

Cost of marketing of the policy | 1,38,90,000 |

Sales support expenses | 32,00,000 |

Total (a) | 2,05,90,000 |

Operations: | |

Policy insurance cost | 29,50,000 |

Policy servicing cost | 96,45,000 |

Claims management cost | 3,80,000 |

Total (b) | 1,29,75,000 |

IT cost | |

IT cost [Refer W.N.] | 2,21,00,000 |

Total (c) | 2,21,00,000 |

Support functions | |

Postage and logistics | 32,40,000 |

Facilities cost | 46,75,000 |

Employees cost | 16,20,000 |

Office administration cost | 48,00,000 |

Total (d) | 1,43,35,000 |

Total cost (a + b + c + d) | 7,00,00,000 |

(ii) Cost per policy = \(\frac{\text { Total Cost }}{\text { No. of policies }}\)

= \(\frac{₹ 7,00,00,000}{2,800}\)

= ₹ 25,000

Working Note:

Calculation of IT cost:

Cost per rupee of insured value = \(\frac{\text { Total Cost }}{\text {Total insured value}}\)

0.002 = \(\frac{\text { Total cost }}{₹ 3,500}\)

Total cost = ₹ 3,500 crores × 0.002 = ₹ 7,00,00,000

IT cost = Total cost – Other costs

IT cost = ₹ 7,00,00,000 – ₹ 2,05,90,000 – ₹ 1,29,75,000 – ₹ 1,43,35,000

= ₹ 2,21,00,000

**Costing For It**

Question 23.

Following are the data pertaining to Infotech Pvt. Ltd. for the year 2020-21: ~

₹ | |

Salary to Software Engineers (5 persons) | 15,00,000 |

Salary to Project Leaders (2 persons) | 9,00,000 |

Salary to Project Manager | 6,00,000 |

Repairs & maintenance | 3,00,000 |

Administration overheads | 12,00,000 |

The company executes a Project XYZ, the details of the same are as follows: Project duration – 6 months

One Project Leader and three Software Engineers were involved for the entire duration of the project, whereas Project Manager spends 2 months’ efforts, during the execution of the project.

Travel expenses incurred for the project – ₹ 1,87,500

Two Laptops were purchased at a cost of ₹ 50,000 each, for use in the project and the life of the same is estimated to be 2 years

Prepare Project cost sheet considering overheads are absorbed on the basis of salary. [ICAI Module]

Answer:

Project Cost Sheet

₹ | |

Salary of Software Engineers (3 × ₹ 25,000 × 6 months) | 4,50,000 |

Salary of Project Leader (₹ 37,500 × 6 months) | 2,25,000 |

Salary of Project Manager (₹ 50,000 × 2 months) | 1,00,000 |

Total Salary | 7,75,000 |

Overheads (50% of salary) | 3,38,000 |

Travel Expenses | 1,87,500 |

Depreciation on Laptops [(₹ 1,00,000/2 years) × 6/12] | 25,000 |

Total Project Cost | 13,75,000 |

Working Notes:

(1) Calculation of Cost per month and Overhead absorption rate:

(2) Total Overhead = Repairs & maintenance + Administration overheads

= ₹ 3,00,000 + ₹ 12,00,000 = ₹ 15,00,000

(3) Calculation of Overhead absorption rate

= Total Overhead / Total Salary = ₹ 15,00,000 / ₹ 30,00,000 = 50%

Question 24.

AD Higher Secondary School (AHSS) offers courses for 11th & 12th standard in three streams i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along with primary and secondary classes but for account¬ing purpose it treats higher secondary as a separate responsibility centre. The Managing committee of the school wants to revise its fee structure for higher secondary students. The accountant of the school has provided the following details for a year:

₹ | |

Teachers’ salary (15 teachers × ₹ 35,000 × 12 months) | 63,00,000 |

Principal’s salary | 14,40,000 |

Lab attendants’ salary (2 attendants × ₹ 15,000 × 12 months) | 3,60,000 |

Salary to library staff | 1,44,000 |

Salary’ to peons (4 peons × ₹ 10,000 × 12 months) | 4,80,000 |

Salary to other staffs | 4,80,000 |

Examinations expenditure | 10,80,000 |

Office & Administration cost | 15,20,000 |

Annual day expenses | 4,50,000 |

Sports expenses | 1,20,000 |

Other information:

(i)

(ii) One teacher who teaches economics for Arts stream students also teaches commerce stream students. The teacher takes 1,040 classes in a year, it includes 208 classes for commerce students.

(iii) There is another teacher who teaches mathematics for Science stream students also teaches business mathematics to commerce stream students. She takes 1,100 classes a year, it includes 160 classes for commerce students.

(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their 15% time for higher secondary section.

(v) All school students irrespective of section and age participate in annual functions and sports activities.

Requirement:

(a) CALCULATE cost per student per annum for all three streams.

(b) If the management decides to take uniform fee of ₹ 1,000 per month from all higher secondary students, Calculate stream wise profitability.

(c) If management decides to take 10% profit on cost, Compute fee to be * charged from the students of all three streams respectively. [CA Inter May 2020, RTP]

Answer:

Calculation of Cost per annum

(a) Calculation of cost per student per annum

(b) Calculation of profitability

(c) Computation of fees to be charged to earn a 10% profit on cost

Arts (₹) | Commerce (₹) | Science (₹) | |

Cost per student per annum Add: Profit @10% Fees per annum Fees per month |
17,397 1,740 |
9,533 953 |
19,238 1,924 |

19,137 | 10,486 | 21,162 | |

1,595 | 874 | 1,764 |

Working Notes:

(1) Teachers’ salary

Arts | Commerce | Science | |

No. of teachers Salary per annum (₹)Total salary |
4 4,20,000 |
5 4,20,000 |
6 4,20,000 |

16,80,000 | 21,00,000 | 25,20,000 |

(2) Re-apportionment of Economics and Mathematics teachers’ salary

(3) Principal’s salary has been apportioned on the basis of time spent by him for administration of classes.

(4) Lab attendants’ salary has been apportioned on the basis of lab classes attended by the students.

(5) Salary of library staffs are apportioned on the basis of time spent by the students in library.

(6) Salary of Peons are apportioned on the basis of number of students. The peons’ salary allocable to higher secondary classes is calculated as below:

₹ | |

Peon dedicated for higher secondary (1 peon × ₹ 10,000 × 12 months) Add: 15% of other peons’ salary [15% of (3 peons × ₹10,000 × 12 months)] |
1,20,000 54,000 |

1,74,000 |

(7) Salary to other staffs, office & administration cost, Annual day expenses and sports expenses are apportioned on the basis of number of students.

(8) Examination Expenses has been apportioned taking number of students and number of examinations into account.

Question 25.

A company wants to outsource the operation of its canteen to a contractor. The company will provide space for cooking, free electricity and furniture in the canteen. The contractor will have to provide lunch to 300 workers of which 180 are vegetarian (Veg) and the rest are non-vegetarian (Non-Veg). In the case of non-veg meals, there will be a non-veg item in addition to the veg items. A contractor who is interested in the contract has analysed the costs likely to be incurred. His analysis is given below:

Cereals | ₹ 8 per plate |

Veg items | ₹ 5 per plate |

Non-veg items | ₹ 15 per plate |

Spices | ₹ 1 per plate |

Cooking oil | ₹ 4 per plate |

One cook | Salary ₹ 13,000 per month |

Three helpers | Salary ₹ 7,000 per month per head |

Fuel | Two commercial cylinders per month, price ₹ 1,000 each. |

On an average the canteen will remain open for 25 days in a month. The contractor wants to charge the non-veg meals at 1.50 times of the veg meals.

You are required to calculate:

(i) The price per meal (veg and non-veg separately) that contractor should quote if he wants a profit of 20% on his takings.

(ii) The price per meal (separately for veg and non-veg) that a worker will be required to pay if the company provides 60% subsidy for meals out of

Answer:

No. of Meals per day: Veg =180 meals

Non-Veg = 120 meals (300 – 180)

No. of Meals per month: Veg (180 meals × 25 days) = 4,500

Non-Veg (120 meals × 25 days) = 3,000

Total = 7,500

Calculation of amount chargeable by Contractor

₹ | |

Cereals (8 × 7,500) | 60,000 |

Cooking Oil (4 × 7,500) | 30,000 |

Veg items (5 × 7,500)
[Incurred for both veg and non-veg workers] |
37,500 |

Spices (1 × 7,500) | 7,500 |

Non-Veg items (15 × 3,000) [Incurred only for non-veg workers] |
45,000 |

Salary of Cook | 13,000 |

Salary of Helpers (7,000 × 3) | 21,000 |

Fuel (1,000 × 2) | 2,000 |

Total Cost | 2,16,000 |

Profit [20% on Takings or 25% on cost] | 54,000 |

Amount chargeable by contractor | 2,70,000 |

(i) It is given that the contractor wants to charge the non-veg meals at 1.50 times of the veg meals.

Equivalent No. of Veg Meals (3,000 × 1.5) | 4,500 |

No. of Non-Veg Meals | 4,500 |

Total | 9.000 |

Price per Veg Meal = \(\frac{₹ 2,70,000}{₹ 9,000}\) = ₹ 30

Price per Veg Meal = ₹ 9,000 = ₹ 30

Price per Non-Veg. Meal = ₹ 30 × 1.5 = ₹ 45

(ii)Price per meal that a worker required to pay after subsidy:

Veg meal = ₹ 30 – (6096 subsidy of ₹ 30) = ₹ 12

Non-Veg Meal = ₹ 45 – (60% subsidy of ₹ 45) = ₹ 18