Operating Costing: Meaning, Definitions, Features, Objectives, Cost Sheet, Examples

Public utility services like transport, water supply, electricity supply, hospitals are the best example for the service costing. Thus Service costing is a method of cost accumulation which is designed to determine the cost of services. Service costing is just a variant of unit or output costing. Service costs are collected periodically like process cost.

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The hotels provide accommodation to the guests as services; thus, it involves a high maintenance cost along with the fixed cost. The fixed cost includes depreciation, staff salaries, interest on capital, taxes, etc. Whereas, variable cost involves electricity charges, temporary staff salary, etc. Transport Costing refers to the determination of the cost per unit of services rendered by a vehicle.

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Services rendered to consumers are known as external service; for example, hospitals, transport companies, electricity companies etc. The operating cost per unit is calculated by dividing the total cost by the number of service units produced or rendered. It is quite important to find out a proper unit of cost in case of operating cost so that the cost per unit can be ascertained. Or ton-km signifying the effort which is made in carrying a passenger one kilometre or a ton of goods one km. Following are composite units based on two or more factors. This method of costing is employed in those undertakings which are engaged in providing or operating services rather than in manufacturing tangible products.

Operation cost centers are cost centers that consist of machines and/or persons carrying out similar operations, while a process cost center is one that consists of a specific process or a continuous sequence of operations. One of the main difficulties in service costing is the establishment of a suitable cost unit. The most commonly used cost unit in service costing is the composite cost unit. Here, the measurement of two parameters is combined to form a single cost unit. To measure the cost of business operations in a service industry is a complex activity where all the cost parameters are to be considered while deciding a suitable unit for costing.

The control of the cost of operating each vehicle. Operating costs of different vehicles can be compared and thus efficiency can be improved. Services rendered by time keeping, canteen, boiler, etc., to other departments within the same firm. As far as the classification in cinema halls composite cost unit is of Operating Cost is concerned, it is very difficult to state clearly whether a particular item of cost falls into one category or the other. For instance, vehicles depreciate due to both the passage of time and the usage of the vehicles.

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It is that form of operation costing which applies where standardised services are provided either by an undertaking or by a service cost center within an undertaking. Determining the suitable cost unit to be used for cost ascertainment is a major problem in service costing. Selection of a proper cost unit is a difficult task. A proper unit of cost must be related with reference to nature of world and the cost objectives. The cost unit related must be simple i.e. per bed in a hospital, per cup of tea sold in a canteen and per child in a school. The powerhouses produce energy in the form of electricity through water, gas or sunlight.

That’s to say, a cost center refers to any place, person, machine, section, part, activity, or function within an organization or undertaking by which costs are collected or accumulated, and to which costs are allocated. In most organizations, canteen facilities are provided at subsidy so that food and other items can be provided at minimum price. The costs are accumulated on a cost sheet which gives the total cost incurred.

Wages paid to a office cleaning staff who was engaged in Administration activities a

1. These log sheets help the management to ascertain the operating cost, to avoid idleness of vehicle and to exercise control.
2. The cost of rendering the service for particular period is related to quantum of services rendered during the particular period to arrive at cost per unit of service rendered.
3. It is a special type of process costing where an operation is a cost centre instead of a process.
4. In the log book all the expenses and activities of the vehicle during that specified period are recorded for cost calculation purpose, maintenance purpose and control on cost purpose.

Similarly, a tool department may choose a mixed cost center. A personal cost center is a cost center that consists of a person or group of persons (e.g., departmental foreman, salesman, supervisor, and factory manager). A production cost center refers to a cost center that is engaged in regular production (e.g., converting raw materials into finished products).