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INTRODUCTION AND
HISTORICAL PERSPECTIVE
The Indian Railways play an important
role in the development of the nation’s economy. They are the second largest organized
carriers of freight and Passenger traffic in Asia. Railway transport costs influence the pricing
of commodities. Being a Government
undertaking Railways are not run on a purely commercial basis. They perform the dual role of maintaining
commercial viability on the one hand and the essential obligation of meeting
efficiently the increasing transport requirements of the rapidly developing
Indian economy.
The Railway manufactures and sells
transport. Accurate knowledge of Production costs is essential for the success
of an enterprise. The profitability of
an undertaking depends on the level of costs vis-à-vis earnings. In the private sector it is necessary to keep
the costs as low as possible for maximization of profits. Minimisation of costs without affecting the
quality of the product or service requires perfect knowledge of various
elements, which constitute the production costs.
Cost study helps in locating
inefficiency under any department of Railway working and thus facilitates in
devising remedial measures. For a
manufacturer of goods it is necessary to calculate the costs of the finished
products for deciding the price fixation and to identify and rectify
unfavourable elements and unnecessary expenses.
Hence like other manufacturers, the Railways
must know the cost of its products viz., transport of goods and Passengers,
measure the efficiency of operation and decide on the fixation of freights and
fares. The primary responsibility of
Railways is to convey Passenger and goods cheaply and quickly between pairs of
points, hence suitable measures have to be adopted to reduce the cost of
haulage, increase speed, comfort safety and punctuality which not only help the
customers/traders but also develops the nation’s economy in the ultimate
analysis.
Rail transport costs are one of the
constituents of the overall cost of the commodities carried by them. Railways are basically the bulk carriers
moving various raw materials and finished products and thus Rail transport
costs enter into the cost of commodities and affect the general price
level. Minimisation of Railways’
transport costs without affecting the commercial viability and the quality of
service becomes the primary goal of Rail management.
The objective of traffic costing is to
supply data for a wide field for management decisions and for the formulation
of national policy in the transport field.
Its basic objectives are:
(i)
to provide basic data for rate fixing;
(ii)
to in carrying out the profitability
analysis of existing and potential traffic;
(iii)
to create costs consciousness and help
in cost control; and
(iv)
to provide data for project appraisals
and evaluation of further capital investment
Costing of Rail transport is not
strictly comparable to costing of commodities and other services. It presents many special features which are
not present in other commodities and which create complex problems in the
process of cost ascertainment. For
example, Rail transport services are offered at hundreds of stations all over
India and uniform decisions have to be taken so as to achieve our objectives of
development taking Indian Railways as a whole, whereas in case of road
operators, they operate in a limited area with the sole aim of maximizing
profit.
Second distinguishing feature is that
the product is not homogeneous. Common
assets are used for carrying passengers and goods traffic. Within both there are further varieties i.e.,
different classes of passenger traffic, luggage, parcels, RMs traffic, goods of
several categories.
Thirdly, Rail transport like any other
transport is a perishing commodity i.e. it cannot be stores. If a wagon is not utilized for loading on a
particular day, its transport capacity the lost forever. This is not the case in respect of other
commodities.
Fourthly, Rail transport requires
creation of vast costly assets for a long span of like and the overall cost of
Rail transport depends on the efficient use of these assets during their life
span or even beyond, for producing transport.
Therefore, analysis of transport costs
present difficult problems. Basic
difficulties are created due to non-homogeneity of end products and spread over
of the production unit over a large area.
Since the same assets are used for giving various services, the costs,
which are common to a number of services, have to be apportioned among them on
equitable basis.
A suitable basis has to be worked out
for allocation of these common costs among different services. The spread over of the production unit over a
large area further complicates the task of costing as a number of elements
enter into the cost calculation.
Wherever possible, expenses are
debited direct and in full to coaching or goods service but in case of joint
expenses, suitable basis of apportionment and also for further allocation to
the constituent facets of goods services like marshalling, transhipment
etc. In the first stage a suitable
procedure was developed for allocation of cost between coaching and goods
services, then a suitable procedure for allocating freight costs into various
facets of goods services and unit costs for various phases of goods operation
like line haul, marshalling, transhipment are computed. Traffic costing has entered the second stage
of its development within the evolution of methodology for detailed costing of
coaching services.
Computation of costs for individual
streams of traffic is necessary to decide whether a particular category of
traffic is remunerative and to examine the feasibility of quotation of special
station-to-station rates to combat road competition or to move additional
traffic in lighter sections or in empty movement direction etc. Costing is also essential for new projects’
financial justification and to decide between various alternatives like
dieselisation, electrification by replacing steam traction.
CONCEPT OF COSTING
The term ‘cost’ assumes different
meaning in different contexts. The
interpretation of cost depends on the viewpoint and the purpose of measuring
the cost. The society in general may be
concerned with the amount and proportion of national resources of labour and
material utilized to provide transport.
The users of Rail transport are concerned with the total cost of
transport from one point to another. It
is therefore, necessary to describe some common terms used in cost analysis.
Fixed Costs
These are also known as non-variable
costs, indirect costs or overheads.
Fixed costs remain constant, with the change in the volume of traffic
over a period of time these include establishment charges, interest,
depreciation charges, expense on maintenance of permanent way etc. these costs
are of a fixed nature and have to be incurred irrespective of charges in the
volume of traffic.
Fixed costs per unit vary inversely
with the quantum of traffic. As the
volume increases, fixed cost per unit declines as the overhead expenses are
spread over a larger output. The fixed
costs always relate to a particular scale of capacity. Any change in scale may change the amount of
cost, which may have been regarded as non-variable in the short run.
Variable Costs/Dependent Costs
These are known as marginal costs,
incremental costs dependent Costs or differential costs. Variable costs are those costs, which
increase or decrease in direct proportion to changes in the volume of traffic. For example cost of fuel lubricants, wages of
running staff etc. The determination of
short-term variable costs helps in working out the direct costs of moving
additional volume of traffic. If,
therefore, provides basis for quotation of special rates for attracting high
rates traffic moving by road.
Fully Distributed Costs
These costs represent the total
expenditure incurred by the Railways in providing Rail transport and consist
of:
(i)
Working expenses and
(ii)
Interest and depreciation on capital
It helps in calculating average unit
cost of transport and includes the element of overhead costs.
Common Costs: These are known as joint costs, which arise
due to non-homogeneity of the product mix.
Same assets are used for providing passenger and goods services. Expenses incurred jointly constitute common
costs. These are allocated n the basis
of certain ratios.
Consignor’s Cost: It represents the costs incurred by the
consignor for transport of goods. It
includes packing charges, charges for loading goods into trucks, transport from
consignor’s godown to the Railway station, unloading and loading of the
consignment into the wagon.
Consignee’s Cost: It consists of expenditure in taking delivery
of the consignment at the destination station i.e. cost of transport from
destination station to consignee’s godown.
It includes unloading from wagon, loading in truck and transport from
Rail head to godown.
Inventory Costs. These are imputed costs.
These represent interest charges on
the capital value of goods locked up during the period of transit.
t
Inventory cost per Tonne = v x r x
------
365
where V = value per Tonne of goods
r
= annual rate of interest
t
= Number of days in transit from consignors godown to that of the
consignee.
Hence delay in transit puts the
customer to loss because inventory will go up.
If Railway transit takes longer time,
traders would prefer road transport, which takes much less time, even though
Railway freight may be lower.
Trader’s Cost: It consists of the total expenses incurred by
the trade for the movement of goods by a particular mode of traffic. Hence this will include consignor’s cost,
consignee’s cost plus inventory costs and freight. When a comparison is made between Railway
freight with the rate charged by road haulers, we have to take into account all
types of costs incurred by the Trade.
Hence the Trader’s cost goes into the price of a commodity in the
market.
Operator’s Cost: It includes expenses incurred by transport
operator in providing the transport service. E.g., acquisition, maintenance,
operation, improvement, replacement of transport facilities. It also includes compensation for damages,
interest on borrowed money, dividend on capital etc.
Economic Cost: It includes the cost of transport to the
nation in terms of national resources of labour and material, which go into
production of Transport Service. Its
calculation is required for resource allocation on different means of
transport. Economic cost of providing
Rail transport service should take into account the cost of movement of goods
by other means of transport also.
It excludes the element of all taxes
and duties of the central and state Govts.
Indian Railways have adopted the
I.C.C. model of fully distributed costs for developing the Rail transport
costs.
TECHNIQUE OF COST
ANALYSIS
The aim of cost analysis is to
correlate expenditure to the physical outputs coming out of these costs. This is done by first locating all the cost
elements, which go into the production of an output. The methods adopted for allocation of these
costs to various services/outputs are given below:
Direct Costing
Firstly efforts are made to relate
various expenses directly to different services. The bifurcation of expenses between different
gauges and coaching/goods services is done by the method of direct
costing. But the majority of expenses
are joint/common expenses, which cannot be related directly to the
output/services. For example terminal
charges maintenance of Railway line, overhead expenses etc. For allocation of these joint costs, indirect
costing methods are used for apportioning the residual cost elements.
Indirect Costing
Its aim is to apportion the joint costs
between different services on some rational basis the methods used are
discussed below.
Engineering Analysis
The experience and knowledge of
engineers in the field of transport costing is used to identify and apportion
the joint costs between various services and functions. For example ratios for apportionment of track
maintenance expenditure, repair and maintenance of locomotives operating
expenses have been developed with the help of technical departments.
Statistical Analysis
The use of statistical methods for
apportionment of common costs can be done extensively in transport costing as
explained below.
Survey Method
This is used for working out ratios
for allocation of joint costs between different services and functions. For example in 1972 survey of 1200 stations
on Indian Railways was done to work out ratios for allocation of joint costs
between different transport functions.
On the spot studies help in working out how much of the time of an
engine is spent on coaching and how much on goods and shunting services at
stations, yards and running of trains, now station staff, running staff, train
passing staff can be allocated to different services. Survey method gives only approximate figures
under different categories and if applied properly these provide closest
approximation to reality/actual.
Statistical Regression Analysis
This is the method of theory and
practice of correlation, which is used in traffic costing to work out the
relationship between different categories of expenses and different parameters
of physical output. Regression analysis
helps in working out ratios for allocation of joint expenses between
services. Simple and multiple regression
analysis is used according to the nature of the problem. In multiple regression analysis more than one
independent variable are regressed or correlated with the dependent
variable. In simple regression analysis
one dependent variable is correlated with one independent variable.
Per cent Variable Method
Under this joint expenses are
allocated in the proportion of direct expenses to total expenses. The percentage of variable cost to total cost
is called “per cent variable”. This is
rough method to indicate a relation between expenses and services and whether
and to what extent increase in expenses would cause by increase in output.
Allocation in the ratio of direct expenses
The overhead expenses, which cannot be
directly apportioned to different services, are allocated among different
services in the ratio of direct expenses of different services.
Cost Accountant’s method of apportionment
Cost accountants have developed method
of apportionment of joint costs on the basis of behaviour of different elements
of cost by observation i.e. study of employees duty hours, machine hours and
other factors required for producing passenger and goods services. Some times this method does not explain
adequately variation of costs with variation in the level of output.
TRAFFIC COSTING &
RAILWAY ACCOUNTS
Introduction:
The basic documents or statements for
accurate traffic costing are dependent on the sound accounting system. The performance oriented accounting system,
which is also function oriented is able to affectively relate expenses to
different services and performances. Earlier
accounting system was based more on sound accounting principles and not on the
requirements and necessity of cost accounting.
The classification of accounts was revised with effect from 1.4.1979 and
is now “function” and “activity” based.
The Revenue expenditure has also been classified corresponding the
Demands for grants” which also show relevant performance units. While the alpha (i.e. letter of Abstract)
corresponds to the Demand head, minor, sub and detailed heads of accounts
represent classification of activity from a broad grouping into details. Previous Nomenclature of Expenditure under
different abstracts have maintained for easy identification and for the sake of
continuity but side by side numerical, nomenclature have been given for a smooth
switchover to computerization. Hence its
utility for analysis of costs if now greater with Railways introducing
computerization.
Let us describe briefly the existing
accounting procedure on the Indian Railways to understand clearly the method
developed for analysis railway transport costs.
Indian Railways keep separate accounts
for—
(1)
Capital and works expenditure on
different new projects of construction, acquisitions, renewals and
replacements.
(2)
Revenue Expenditure.
The revised classification of
expenditure on works irrespective of being chargeable to Capital, D.R.F.
DF/OLWR, Revenue and Capital Fund come under demand No. 16 known as
“Assets-Acquisition, Construction Replacement.
Sources of financing demand No. 16 are
indicated by letters:
P – for capital
Q – for D.R.F.
R – for Revenue (O.L.W.R.)
S – for Development Fund
T – for Capital Fund
There are twenty-seven plan heads,
which for the purpose of link with the accounts of the Central Govt. from minor
heads of Railway capital.
Minor heads of classification: -
11.
|
New lines (construction)
|
12.
|
Purchases of new lines
|
13.
|
Restoration of dismantled lines.
|
14.
|
Gauge conversion
|
15.
|
Doubling
|
16.
|
Traffic facilities – yard remodeling and others
|
17.
|
Computerisation
|
18.
|
Railway Research
|
20.
|
Rolling stock
|
31.
|
Track renewals
|
32.
|
Bridge works
|
33.
|
S & T works
|
34.
|
Taking over of line wires from P & T Dept.
|
35.
|
Electrification projects.
|
36.
|
Other electrical works.
|
41.
|
Machinery and plant
|
42.
|
Workshops including production units
|
51.
|
Staff quarters
|
52.
|
Amenities for staff
|
53.
|
(i) Passenger amenities
|
(ii) Other Railway users
|
|
62.
|
Investment in Govt. commercial undertaking
public undertakings – IRCON, RITES
|
64.
|
Other specified works.
|
71.
|
Stores suspense
|
72
|
Manufacturing suspense
|
73.
|
Miscellaneous advances
|
80.
|
Metropolitan Transport projects.
|
The sub and detailed heads give the
break up of expenditure on assets, viz. Preliminary expenses, Land, Formation,
permanent way, Bridges, Stations, Buildings etc. Detailed classification has
been given in Bahri Booklet entitled “Revised classification of Accounts
of Expenditure and Earning” based on Indian Railways Finance Code Volume II.
Revenue expenditure is classified in
13 Revenue Abstracts seven are functional service Abstracts (BCD & E Repair
and Maintenance and F.G.H. of Operating Expenses). Five are overhead Abstracts (‘A’ of General
Superintendence and Services, ‘J’ of Staff Welfare and Amenities ‘K’ of
Misc. Working Expenses ‘L’ of Provident
Fund, pension and other retirement benefit ‘M’ for Appropriation to Funds. The remaining one i.e. Abstract ‘N’ pertains
to Suspense.
Each revised abstract correlates with
demand for grant. This ensures that the
Demands for grants are compiled from the financial accounts directly and
present useful data in a simplified and direct and clear manner. Each Demand for grant distinguishes/
differentiates between variable, semi-variable and fixed items of costs and
facilitates performance budget being integrated with it. Each abstract is given a two digit Code also,
as under:
S.
No.
|
Particulars
|
Demand
for Grant
|
|
1.
|
Abstract ‘A’
|
General Superintendence and Services
|
03
|
2.
|
Abstract ‘B’
|
Repairs and Maintenance of Permanent Way and
Works
|
04
|
3.
|
Abstract ‘C’
|
Repairs and Maintenance of Motive power
|
05
|
4.
|
Abstract ‘D’
|
Repairs and Maintenance of Carriages and Wagons
|
06
|
5.
|
Abstract ‘E’
|
Repairs and Maintenance of Plant and Equipment
|
07
|
6.
|
Abstract ‘F’
|
Operating Expenses – Rolling Stock and Equipment
|
08
|
7.
|
Abstract ‘G’
|
Operating Expenses – Traffic
|
09
|
8.
|
Abstract ‘H’
|
Operating Expenses - Fuel
|
10
|
9.
|
Abstract ‘J’
|
Staff Welfare and Amenities
|
11
|
10.
|
Abstract ‘K’
|
Miscellaneous working expenses
|
12
|
11.
|
Abstract ‘L’
|
Provident Fund, Pension and other retirement
benefits
|
13
|
12.
|
Abstract ‘M’
|
Appropriation to Funds
|
14
|
13.
|
Abstract ‘N’
|
Suspense
|
12
|
(i)
Demands payable
(ii)
Miscellaneous Advances Revenue
The above Revenue Abstracts except
‘L’, ‘M’ and ‘N’ are subdivided into Minor heads which show departments and
activities whereas Abstract ‘L’ exclusively deals with P.F., pension and other
retirement benefits, ‘M’ for appropriation to Funds and ‘N’ for suspense.
These Abstracts or sub-major heads are
further divided to minor heads, sub heads and detailed heads. Hence the Railway Revenue Expenditure is
booked under more than 1200 detailed heads of accounts and this number will
multiply many times when primary units (objects of expenditure) are suffixed to
each detailed head.
Important Primary units of Expenditure
(Revenue) are as follows: These are
identified with specific two digit numbers.
For instance salaries and wages are identified by digits 01, DA with 02
and so on.
(i)
Salaries and wages.
(ii)
Dearness allowance
(iii)
Kilometrage allowance
(iv)
Overtime allowance
(v)
Night duty allowance
(vi)
Other allowances
(vii)
Fees and Honorarium
(viii)
Productivity linked Bonus
(ix)
Travel expenses including Air Travel
(x)
Contingent expenses
(xi)
Cost of materials from stock
(xii)
Cost of materials directly purchased
(xiii)
Contractual payments
(xiv)
Other expenses
Total
Such detailed analysis helps in
apportioning various items of expenditure to the different functions of Railway
Transport in the process of costing.
Initial accounts are
prepared/maintained by various accounting units attached to the Divisional
offices, Workshops, Zonal Headquarters and Railway Board i.e. 4 tier Railway
Administration. Expenses are booked
directly from cash transactions or from the adjustment vouchers, which record
the classification of Expenditure.
TRAFFIC
COSTING & TRAFFIC STATISTICS
Introduction
Traffic costing depends mainly on
traffic statistics for basic data regarding Railways performance. Railways compile statistical data on various
aspects of Railways working and the same is published in the form of monthly
and annual statistical statements every year as per detailed instructions given
in Railway Boards’ Statistical Manual Vol.I and II. Every Zonal Railway has a full-fledged
statistical department and a statistical Directorate is functioning in the
Railway Board’s Railway organizations.
Compile and collect data about the working and performance of their
respective zones. Hence sufficient
statistical data is available on every facet of Railway working for use in
Traffic costing. Railway statistics have been broadly classified under the
following categories:
(i)
Financial statistics
(ii)
Commercial statistics
(iii)
Operating statistics
(iv)
Administrative statistics
Financial Statistics
These give the detailed information
about the financial aspect of Railway working.
The compilation is done from the accounts maintained by each zonal
Railway, giving details of financial results such as capital at charge, working
expenses, gross earnings, payment of dividend to general revenues appropriation
to D.R.F., Pension Fund for every year.
Capital expenditure incurred during the year is further broken up under
the following heads:
(i)
Works including preliminary expenses,
land etc.
(ii)
Rolling stock
(iii)
General and Miscellaneous charges
(iv)
Floating assets
(v)
Other assets etc.
The ordinary working expenses incurred
during a year are also available under various heads of demands for grants
available Abstract-wise.
The above information is available in
the statements 1 to 7 of Annual statistical statements.
Commercial Statistics
They give data about commercial
performance of each Zonal Railway. It
gives details of passenger and freight traffic carried by the Indian Railway along
with earnings. Commodity statistics for
important commodities carried give details about originating tonnage, tonnage
transshipped, earnings, average load of traffic, Net tonne kilometers, tones
transshipped etc. This information is
contained in statements 8 to 16 of Annual statistical statements.
Statement No. 15 of Annual statistical
statements gives results of working of coaching and goods services and provides
background material for traffic costing.
This statement contains the following information:
(i)
Cost of hauling a passenger train and
passenger vehicle per kilometer
(ii)
Cost of hauling a goods Train and
goods wagon per kilometer, and
(iii)
Cost of hauling a tonne per kilometer.
Separate statistics are also available
for Non-revenue tonnage like Railway coal, Railway material, number of claims
settled and amount paid due to various causes like yard thefts, running train
thefts etc. etc.
Operating Statistics
These describe operating performance
of Indian Railway and are very important from the point of view of traffic
costing. It gives information about
train kilometers, engine kilometers, gross tonne kilometers, engine hours,
wagon kilometers etc. Statements 17 to
37 of Annual statistical statements give details of operating statistics. Operating statistics are used in Traffic
costing for apportionment of expenses to various phases of Railway operating,
marshalling yard and terminal yard operations etc. This data is also used for calculating unit
cost for the above-mentioned facets of Railway working.
Administrative Statistics
These relate to number and cost of
staff by different categories and departments-giving further details of
man-days lost due to various reasons, accident statistics, cost of police
force, R.P.F. etc. statements 40 to 43 of Annual statistical statements deal
with Administrative statistics.
GLOSSARY OF TECHNICAL TERMS USED IN TRAFFIC COSTING
Allocation: means classification of earnings or
expenditure with reference to a particular activity, object, service or a Cost
center as the case may be.
Apportionment:
means division of earning or expenditure among different services, activities
or Cost Centres in accordance with certain pre-determined basis, norms and
methodology.
Bifurcation:
means division of earnings or expenditure between two activities, services or
functions according to methodology, which uses techniques of allocation as well
as apportionment of expenses.
Cost: is
the amount of expenditure incurred on or attributable to a given output/product
or service.
Costing or Cost Ascertainment: refers to the techniques and processes of
ascertaining cost, the methods used and the actual processes of cost finding.
Cost Centre:
refers to a location, person or item of equipment (or groups of these) for
which cost may be ascertained and used for the purpose of Cost Control.
Cost Unit: constitutes a unit of quantity or volume of a
product, service or time (or a combination of these) in relation to which cost
may be ascertained or expressed.
Direct Costs:
are essentially identifiable costs, which directly vary with the
activity/service. These are identified
with a particular cost center, output or activity.
Depreciation:
means the allowance made in the overall cost for general wear and tear of
assets brought into use or loss of value with the passage of lime or due to
obsolescence.
Depreciation Reserve Fund:
is meant to meet the cost of replacement and renewal of the Railway assets
according to the prescribed rules of allocation. An annual contribution based on the
recommendation of the Railway Convention Committee is made to this Fund from
the Railway revenues. Apart from this
contribution, it is credited with the (i) amount realized from the disposal of
assets replaced or condemned in accordance with the rules laid down for the
purpose and (ii) interest earned on the balance of the Fund. The contribution made to the Fund is
distributed Railway-wise in proportion to the capital-at charge of each
Railway.
Fixed costs:
are those items of cost, which do not vary directly with output, but there is
only a small increment in cost as compared to the volume of increase in the
output.
Fully distributed Costs:
include direct and joint costs together with costs relating to interest and
depreciation on Capital investment and all other overheads.
Indirect Costs:
are joint costs, other than overhead costs, which are directly related to the
material cost and are shared by allocation between the services or activity
that benefits from these.
Interest: is
the amount charged off to revenue expenditure at a fixed rate for the use of
capital investment. In Railways’
accounting interest is treated as dividend payable to the General Revenues.
Overheads:are those
costs which are not directly or indirectly identifiable with a particular
service or activity but are necessary for setting up of an organization
responsible for designing/production/marketing etc.
Marginal or Incremental Cost: is
the additional essential cost of producing an additional unit of output.
Variable Cost:
vary directly with the quantum of output or service and can be measured in
proportion to the level thereof.
TRANSPORT
COSTING STAGE I
Indian Railway operates on three
gauges – Broad gauge, Meter gauge and Narrow gauge. Since the operating characteristics of these
gauges are different, separate Costing is done for Broad and Meter gauges. The detailed costing for Narrow gauge is not
done for the present in view of its limited role on the Indian Railways.
The first step in the
development of fully distributed costs is therefore, to segregate the expenses
for different gauges. For segregation of
expenses for each gauge, the principle of direct allocation is followed for all
those items of expenses, which are incurred exclusively for a particular
gauge. The expenses which are common to
more than one gauge are apportioned among different gauges at the end of the
financial year on the basis of certain ratios, the instructions for
apportionment of joint expenses over the different gauges booked under various
abstracts are issued by the Railway Board, which are contained in Appendix-I of
the Manual of Statistical Instructions volume II.
Second step in
Railway costing is to separate the expenses pertaining to Electric Multiple
Unit (EMU) services from total expenses of those Railways, which operate these
services. The exclusion of expenses
pertaining to EMU services from total expenses for each gauge is done, as the
cost characteristics of suburban sections are different from that of other
sections. Due to heavy density of
traffic, the wear and tear of rolling stock, rails etc. is very high on
suburban sections. The economics of
operating the suburban services is therefore worked out separately. The share of EMU expenses is worked out separately
for all the relevant abstracts and it is separate account head-wise from the
expenses of each abstract. The
instructions for the allocation of joint expenses between suburban service and
other services are issued by the Railway Board, these instructions are
contained in Appendix-II of the Manual of Statistical Instructions Vol.II.
The third step in the
development of fully distributed costs, is to bifurcate the total expenses of
each gauge after excluding the expenses on suburban service, between coaching
and goods services. Efforts are made to
identify and allocate the expenses under each abstract directly to coaching and
goods services. But direct expenses are
few, major portion is joint expenses, which have to be apportioned between
coaching and goods, on the basis of certain ratios developed with the help of
various costing techniques.
FREIGHT TRANSPORT COSTING –
DETAILED ALLOCATION OF COSTS
The basic purposes of freight costing
is to allocate total expenses incurred for the movement of goods traffic into
certain physical operations of goods movement which are broadly classified as
follows.
Terminal functions:
are carried out at various goods terminals on the Railway where goods traffic
is accepted and delivered. These
functions are carried out at both originating and destination stations. At originating station the terminal
activities would include documentation, loading terminal haulage, shunting at
terminal stations etc. Similar
activities take place at destination also.
The expenses incurred for carrying out terminal functions are called
terminal expenses. These expenses are
not affected by the lead of traffic.
Marshalling:
is an important function in the movement of goods, the goods, on receipt, is
broken up for loading into wagons for different destinations. The wagons require marshalling for formation
of the trains, which carry the wagons either directly to the destination or to
the farthest marshalling yard. Expenses
incurred for these functions are marshalling costs and are included in overall
costs.
Transhipment is
done where traffic is to change from one gauge to another. For example, Rly. Wagons are unloaded and
reloaded into MG wagons. These expenses
are known as Transhipment costs.
Repacking:
This is done to improve the wagon utilization.
A number of small consignments for the same destination are collected
from a number of wagons going to different directions at a junction and put in
one wagon. This wagon is then sealed and
dispatched either directly to destination or to the next farthest repacking
point. This repacking activity involves
unloading of “Smalls” consignments from wagons, planning their dispatch and
reloading them into the wagons. The
expenses incurred in repacking of wagons are known as repacking cost.
Line haul:
This activity consists of actual haulage of the wagon or consignment from
originating station to the destination.
The expenses incurred in haulage between first and last marshalling yard
in the movement of wagon or consignment excluding marshalling, transshipment
and repacking constitutes the line haul cost.
For all these activities involved in
the Transport of goods traffic heavy expenses have to be incurred. These expenses make up Rail transport cost of
goods traffic. An effort is made to find
out not only total transport cost but also the cost of various functions
involved in the process. The cost of
each activity is the sum total of various expenses done for doing those
functions the following expenses go into their cost of production.
The above items constitute total
transport costs. But to determine the
total costs, the following are also taken into account:
(1)
Staff expenses: A combination of staff from different
departments is required for various operations done for the movement of goods
traffic. Staff cost includes wages,
allowances, overtime, etc. as also expenses on staff welfare measures.
(2)
Provision and Maintenance of Rolling
Stock: These costs include not only the
cost of repairs and maintenance of wagons but also the cost of detention to
stock (wagons) which has to be quantified and taken into account for
calculating the cost of various operations.
(3)
Material and Stores: A large quantity
of materials and stores have to be supplied to each cost center for doing
various activities. The quantity and
type of materials required is different for different cost centers and depends
on its size and nature of work performed by it.
Therefore, the necessity of materials for goods shed will be different from
loco shed or a station. Expenses
incurred to procure the materials and stores for various cost centers from
necessary elements of cost of different functions of freight transport.
(4)
Overhead costs: These costs are
incurred for Rail movement as a whole and cannot be related to a particular
service because they are indirect expenses but are unavoidable for doing
various functions.
The
entire freight cost is analysed into constituent elements terminal, repacking,
marshalling, line haul etc. The method for
division of freight cost into its elements is similar to that explained earlier
for division of expenses in the coaching and goods service – i.e. expenses
which can be apportioned exclusively to a function re allocated directly and
common expenses are divided on the basis of ratios developed by costing
techniques. Expenses booked under
various abstracts are distributed for each detailed and sub-detailed heads of
account. Indian Railways have worked out
a proforma for this exercise known as “Green Book”.
DEVELOPMENT
OF GOODS UNIT COSTS
Green Book is the basic
document for development of Goods unit costs.
Green Book consists of seven Schedules running from Schedule A to G as
detailed below:
(i)
Schedule A – It provides
the framework for distributing working expenses of goods services including
interest and depreciation among various functional groups of service. General overheads are then distributed to
these functional groups on pro rata rupee basis. Whenever possible each individual account
head is assigned directly to the concerned item of service and the remaining
account heads where joint expenses are involved, are apportioned on the basis
of apportionment factors.
Central Charges –
expenses of Railway Board, Audit etc. are shown as a percentage of working
expenses. Expenses of line haul are
bifurcated into the cost of carrying unit i.e. wagon and the cost of hauling
the payload. The costs are separately
worked out for through Trains and Van/Shunting goods Trains.
(ii)
Schedule B – In this
schedule working expenses for various functional goods services are divided by
the corresponding service units to come to the unit cost, which are separately
worked out for through and van goods trains.
(iii) Schedule
C
– This consists of the proforma for
separating expenses under different heads further into sub-activity-giving
details of cost documentation, traction-wise, cost of line haul etc.
(iv)
Schedule D – This
schedule gives framework for working out the unit cost for expenses separately
in Schedule C. Hence this schedule gives
the cost of documentation per invoices, cost of traction per engine hour and
per shunting engine hour and maintenance cost of track and signaling for train
kilometers/1000 Gross Tonne kilometers etc.
(v)
Schedule E– In this
schedule expenses under different abstracts are combined for working out cost
for various facets of operation – cost of terminal operations, transshipment
repacking etc. – separately for through and van and shunting goods trains.
(vi)
Schedule F – In this
schedule, total expenses under each facet of operation as worked out in
schedule E are divided by the related performance factors to work out the
respective unit cost. Central charges
are shown as a percentage of working expenses.
(vii)
Schedule G – This
summarises the end results of schedules B, D and F in the form of a table.
Unit costs of goods traffic for
various functional groups are worked out for each zone separately for BG and MG
under three groups i.e. group ‘A’, ‘B’ and ‘C’ costs.
(i) Group A –
These are fully distributed costs and include interest, depreciation and
overhead costs. Depreciation is based on
actual contribution to D.R.F. Unit costs of the following groups are worked out
under group ‘A’ costs:
(1)
Terminal cost (Per Tonne)
(a) Per
Tonne (i) small (ii) wagon loads
(b) Per
wagon – wagon loads
(2)
Repacking cost of small traffic per
tonne and per Handling.
(3)
Transhipment cost – per tonne and per
Transhipment
(4)
Marshalling cost per wagon, per yard
Handled.
(5)
Line haul cost –
(i) Per Train KMs
(ii) Per wagon KMs
(iii) Per Tonne KMs – Payload
(iv) Per wagon KMs – carrying units
(ii) Group
B
– Under Group ‘B’ unit cost for each type of traction and also for through
goods and van and shunting goods trains are covered. Overheads and central charges are shown
separately as percentages and for working total costs, these are added to the
unit costs at eh end.
(iii) Group
C costs
– Under this group unit cost for each type of traction and also for through
goods and van goods trains are given, overhead and central charges are shown
separately as percentages. For working
out total costs, these will have to be added to the unit costs at the end. Items for which unit cost are worked out
under group ‘C’ are summarized below:
(i)
Terminal costs –
(a) Cost
of documentation per invoice
(b) Cost
of handling smalls per tonne
(c) Cost
of other terminal services per tonne and per wagon separately for small and
full loads.
(ii)
Repacking Cost – Cost of repacking
smalls per tonne and per handling.
(iii)
Transhipment cost – per tonne per
Transhipment.
(iv)
Marshalling cost – per wagon, per yard
handled.
(v)
Provision and Maintenance of carrying
units per wagon day.
(vi)
Line haul cost:
(a) Cost
of track 1000 GTKMs for steam, diesel and electric separately.
(b) Oyther
transportation expenses – Per Train KM per 1000 GTM.
(c) Track
and signaling cost per Train KM & per 1000 GTKM.
(vii)
General overhead charges – percentage
of direct costs.
(viii)
Central charges – percentage to total
cost.
Line haul given in
group ‘A’ and ‘B’ are applicable to goods trains general Group ‘A’ and ‘B’ are
further bifurcated into line haul cost for through trains and van goods
trains. Costs for through and van goods
trains in group ‘A’ are applicable to all tractions and include overhead
costs. These costs under group ‘B’ are
separately available for each type of traction and do not include overhead can
central charges.
Units cost under group ‘A’, ‘B’ have
different applications group ‘A’ costs are used in working out transport cost
for a commodity or stream of traffic when type of traction is not known. Group ‘B’ cost are used for working out
transport cost of specific streams of traffic.
These are fully distributed costs and give basis for quotation of
station to station rates.
EXISTING
APPLICATION OF COST DATA GOODS SERVICES
The system of collection for
expenditure through financial accounts is based on departmental
allocations. Most of the major groups of
traffic operation viz. Freight and Passenger services are organized with the
cooperation of various departments which have to be arranged in terms of
services/activities for working traffic costs.
The accounting technique is an aid to financial management, when
presented in sufficient details; it can be used for projection of costs under
alternative situations. Hence the
purpose of cost analysis studies is to assist the decision maker in evaluation
of different schemes/revisions methods of operation, as well as choice of
alternatives. Specific problems with the
management and the alternative services/schemes under consideration with regard
to cost analysis have been to illustrate the manner in which cost analysis data
has been used in some important applications.
Costing of specific streams of Traffic –
The end results of unit costs can be used for the costing of specific streams
of traffic. Unit costs are basically
zonal and all India averages. When these
costs are used for costing specific streams of traffic some refinements are
required to be introduced for taking into account the cost characteristics of
the particular movement. The procedure
adopted for costing specific streams of traffic has been detailed below:
The quantum of traffic in tones is
first converted into loaded wagons on the basis of average load of a particular
commodity, which is being costed.
Specific empty return ratio is applied keeping in view the type of
commodity, pattern of movement and type of wagon. The nature of the movement is known from the
originating to destination station to identify the type of traction used and
the distance the wagon would cover on through train and van or shunting goods
trains. Train engine kilometers required
for the given quantum of traffic in terms of loaded wagons and corresponding
empty engine kilometers are assessed on the basis of average load of the trains
over the specific sections. Proper
allowance is also made for light engine kilometers and banking engine
kilometers to arrive at total engine kilometers by the concerned traction. Gross tonne KMs, Net tonne KMs. and wagon
KMs. (loaded and empty) for the specific movement is also worked out.
Engine usage factor specific to the
division through which the traffic would pass is applied on total engine KMs.
to estimate the number of engines required for the movement of given quantum of
traffic. Banking engine requirements are
worked out separately. Provision is also
made for the number of engines under or awaiting repairs and spares.
The number of marshalling yards,
engine-changing points, and train examining points along the route are also estimated. For small the number of repacking points
enroute are worked out. Wagon turn round
time is calculated after considering total distance, type of traction average,
speed of through and van goods trains, detention at Marshalling yards,
transshipment points etc. Allowance is made for empty haulage and for wagons
awaiting repairs to work out number of wagons required to move the given
quantum of traffic.
The cost of line haul is worked as
under:
(a)
Figures of engine KMs. are used for
working out cost of repairs and maintenance of locos and cost of loco fuel.
(b)
Figures of GTKMs are used for working
out fuel expenses. Allowance is made for
gradient, banking engines etc.
(c)
Cost of transportation staff including
train passing staff and train staff is based on train kilometers.
(d)
The cost of track and signaling per
100 KTKMs, which is applicable to average density of traffic, is adjusted to
show the specific densities of the section en route.
The element of expenses for Pension,
P.F. and other staff benefits and welfare measures is expressed as a percentage
of other direct expenses i.e. overhead percentage in group ‘B’ costs are split
into two groups:
(i)
Staff overheads,
(ii)
Indirect general overhead and central
charges
The total capital cost of Rolling
stock (engines by traction and wagons by type) are calculated on the basis of
their present day cost. Depreciation
charges are worked out on the life of a particular asset on strait line
method. Interest charges are calculated
at the existing rate of dividend.
Costing and project appraisal:
The end result of cost analysis can be applied for project appraisals. All projects have to be financially justified
before approval. No proposal for
expenditure should be considered financially justified unless earnings or
savings in working expenses expected to be realized are such that after meeting
average annual cost of service of the asset they yield a return of not less
than 14 per cent. Various types of
Projects and schemes on Indian Railways can be classified under the following
categories:
(i)
New lines
(ii)
Yard remodeling and terminal
facilities
(iii)
Line capacity works such as provision
of crossing stations, additional routes, gauge conversion etc.
(iv)
Dieselisation and Electrification
(v)
Microwave and other telecommunication
projects.
Methods of preparing
the operating costs estimates of new projects
The average annual cost of service
consists of cost of repairs and maintenance, operating costs, interests and
depreciation. With the availability of
unit costs for various services separately for each gauge on each railway, the
working expenses of a new project can be assessed more accurately by applying
unit costs. The application of unit cost
data for working out cost of moving additional anticipated traffic poses a
problem of making a choice between the fully distributed cost and long-term
variable costs. It is not correct to
take variable cost alone if expected additional traffic is not sizeable as
compared to traffic already moving on the section. In such a situation it is proper to incur
additional costs of a fixed nature like strengthening the track, construction
of new crossing stations etc. In case
the additional traffic over a section is expected to be heavy cost calculations
need not be based on fully distributed costs.
A proper decision should be taken according to circumstances. At present whenever cost calculations are
based on variable costs only the variable costs are taken as 78% of
full-distributed costs. The percentage
has been evolved through statistical analysis of each revenue abstract.
(a)
Empty haulage: For moving additional is also estimated by
considering special features of additional movement. If not possible to do so, the following
ratios are adopted. The ratios are
subject to reviews and may be varied in due course.
BG
|
MG
|
||
(a)
|
Special type wagons (BFR, oil tanks etc.)
|
100%
|
100%
|
(b)
|
Iron ore traffic and raw Material for steel
plants
|
100%
|
100%
|
(c)
|
Coal
|
80%
|
33%
|
(d)
|
Other commodities
|
23%
|
33%
|
(b)
Marshalling yards Costs: The number of wagons inward and outward
required to be handled at various M/yards over existing or new line are
assessed. After working out cost of
marshalling for loaded wagons it is inflated by applying ratio of empty
haulage. For through traffic, by passing
the M/yard, cost would depend on actual nature of work done for through Train
with the help of survey. Cost of
detention to wagons is covered under “carrying units – provision of
maintenance” and the expenses on Train clerks, RPF; staff etc. are included
under line haul costs. The cost of
detention to engine is worked out. At
present 25% of M. yard costs are taken for through Train bypassing M.
yard. The next problem is to know the
number of marshalling that a wagon will undergo for a specified distance for
working out marshalling cost. Existing
norms for general movement are as under:
Distance
in KMs.
|
No.
of Marshalling
|
|
BG
|
MG
|
|
1 – 40
|
2
|
2
|
41 – 200
|
3
|
3
|
201 – 500
|
3.5
|
3.5
|
501 – 800
|
4
|
4
|
801 – 1300
|
5
|
6.5
|
1301 and above
|
5.5
|
7.5
|
For
individual and specific streams of traffic the marshalling yards en route
should be taken into account.
(c)
Terminal expenses:
Documentation charges are calculated on the basis of one invoice per wagon for
wagonload traffic and one invoice for 0.54 tonnes of smalls traffic. For train load movements one invoice is taken
for 10 wagons normally. Due allowance
made for staff employed by the consignee/consignor for these operations.
(d)
Provision and maintenance of carrying
units: Calculation is based on wagon KMs per wagon
day. The correct method would be to work
out wagon turn round for particular movement from which the number of wagon
days can be estimated.
(e)
Engine kilometers:
For calculating engine KMs. it is necessary to compute train KMs. To this figure the following KMs. are added:
(i)
Additional engine KMs. for double or
triple heading.
(ii)
Engine KMs. for banking engine on
graded sections.
(iii)
Engine KMs. for light engines.
These
figures are worked out from the figures of engine KMs. per engine day for goods
traffic. Proper allowance should be made
for the repairs and maintenance of engines.
The factors relating to movement – by through or van shunting goods
trains should also be taken into consideration.
Fuel and lubrication costs should be calculated on the basis of GTKMs.
(f)
Track and signaling line haul: These costs are calculated on the basis of
gross tonne KMs. It is possible to split
up total costs into fixed and variable portions 47% of this expenditure various
with GTKM for BG/MG. Average unit cost
applicable to BG and MG are adjusted by considering specific density of traffic
on a section vis-à-vis average density of a Zonal Railway. For example for a section with density of
18000 GTKMS per day as compared to overall density of 12000 KMs. per day on the
Zonal Railway. If average unit cost for
track and signaling for the Railway is Rs. 6 per 1000 GTKMs, the average unit
cost for the section will be Rs. 6 x 0.53 + (Rs. 6 x 0.47 x 12/18) or Rs.5.06
Rs. 1000 GTKMs.
(g)
Container costing: Since container service is an alternative to
road transport, its cost is important.
Method of costing container service follows basic principles of
costing. Container costs can be
classified into Rail portion and road portion of costs.
For Rail Portion:
(i) Terminal cost is the average terminal cost per wagonload consignment for
concerned Railway less element of cost for compensation claims. Cost of wagon flats containers; documentation
charges should be calculated separately.
(ii)
Marketing: Number of
marshalling that a container movement undergoes is worked out between the pair
of stations and then the cost of marshalling per wagon for particular Railway
is then applied.
(iii)
Empty return ratio: Is assessed for particular container movement
between a pair of points. This ratio may
vary from 0 to 100 per cent w.r.t. availability of traffic in the return
direction.
(iv)
Line haulage:
Consists of traction cost, transport cost and track and signaling cost. Unit cost of a particular Railway per 1000
GTKMs is adopted for traction and transportation costs. For cost of Track and signaling per 1000 GTKM
due allowance is made for density on a particular route.
(v)
Road portion of the cost will consist
of interest capital cost of lorries, garages, land (if purchased) rent/lease of
land, depreciation charges. Interest on
capital cost as under:
(1)
Interest and Depreciation
(a) On
Tractor Trailers,
(b) On
Garages,
(c) Cost
of Land for Shed;
(2)
Cost of fuel, lubricants and other
consumable stores;
(3)
Cost of staff-commercial, mechanical;
(vi)
The profitability of container service
is worked out as under:
(i)
Total gross earnings for traffic
carried by containers less earnings traffic which would have normally moved by
wagons.. X
(ii)
Gross expenditure of container service
including interest and depreciation less gross expenditure that would have been
incurred for moving the traffic by wagons. Y
(iii)
Net additional earnings due to
introduction of containers … (X – Y)
(iv)
Capital cost of container, flats,
tractors, trailers less the cost of ordinary wagons that would have been
required to carry the existing traffic. C
(v)
Net return on additional capital.
(X – Y) + C x 100
After the economics of operating
container services has been worked out, the rates can be quoted covering either
the variable costs of road portion or fully distributed cost depending upon
circumstances and market position.
COACHING
COSTING-METHODOLOGY
Coaching
Traffic is concerned with movement of passengers, luggage, parcels and postal
traffic etc. It is divided further into
“Passenger Traffic” and “Other Coaching Traffic”. Passenger services include EMU service and
Rail car service. Since there are
special features of EMU service, like heavy frequency of services, increased
wear and tear of rolling stock and Rails etc. for a proper appreciation EMU
services have to be studied separately.
The principles in costing of passenger
services are the same as for goods service.
But in case of passenger the transport is pre-determined and
compulsory. Passenger service published
in Railway Time Tables cannot be cancelled even if the occupation is poor. Therefore, the cost study will take into
account the average utilization and adjust profitability margins in the rate
structure.
The method of apportioning total
working expenses, cost analysis between coaching and goods has already been
explained. For the cost analysis of
coaching services we have first to deduct the expenses of EMU service
apportioning joint expenses of goods and coaching services and then device a
formula for apportioning expenses between passenger services and other coaching
services. The coaching share of fully
distributed costs as arrived at divided by total passenger train kilometers
will give average cost per passenger train kilometer for the system. The expenditure of coaching services is first
apportioned among Terminal, Running and Overheads. A further break up of terminal and line haul
cost is done as under:
I.
Terminals
(a) Passenger
services
(b) Parcel
and luggage
(c) Catering
– static units
II.
Line
haul
(a) Passenger
service
(b) Parcel
expresses and carriage of parcels and luggage by mail and Express and ordinary
Passenger Trains.
(c) Haulage
of dining car by important trains.
Methodology
adopted for allocation of expenses of coaching services to functional groups.
1. Detailed
costing techniques for various operations involved in movement of coaching traffic
and apportionment of expenses to functional groups are given below.
2. Method of apportionment of coaching
expenses between passenger and other coaching services among various functional
groups like terminals, line haul etc. follow broadly the pattern adopted for
goods traffic. Wherever possible, the
items of expenditure under each sub-detailed head is directly allocated to
concerned functional group of service and in the case of common costs suitable
ratios have been worked out on sample studies.
For example, detailed instructions for compilation of vehicle KMs/GTKMs
for Mail/Express Trains and ordinary and by classes of Travel for passenger and the coaching
services have been issued to Railways.
These are computed from the vehicle guidance register or way bill
prepared for each train by the operating department. Vehicle KMs involved in departmental working
are excluded from vehicle KMs, so that expenditure can be related to public
traffic alone.
Total expenditure on coaching services
can be sub-divided as under:
I. (i) Terminal Service: These include expenses for booking offices,
waiting rooms, platforms, shunting which includes formation of passenger trains
including attachment/detachment of sectional and slip coaches etc. provision
and maintenance of coaching stock and provision of washing lines and other
special services.
(ii) Special Services: These include provision and maintenance of
Enquiry office, Reservation office, Retiring rooms, left luggage office,
provision of space for parking of private cars, Taxis, auto-rickshaws. Expenses relating to station ticket
collectors, platform Inspectors, passenger guides and ‘May I help you’ squads
are also to be included besides proportionate cost of station staff of be
allocated between coaching and goods services.
These relate to terminal facilities at stations. Special services also include provision of
conductor guards, coach attendants for first class corridor coaches, A.C. coach
attendants T.T.Es in general services etc.
II. Line Haul Services: These include a proportionate expenditure on
traction (hauled by locos) cost of train passing staff including guards,
provision and maintenance of track and signaling units etc. The pattern is similar to that of goods
services.
Direct expenses relating
to operation of a train consist of cost of traction i.e. cost of fuel, crew and
maintenance of loco, coaching stock allotted for the service, staff directly
nominated for the service for stationery duties as well as staff on train.
Joint expenses:
Which are to be shared between various services fall in two groups: Terminal facilities for booking of passengers
and other coaching services, ticket reservation, enquiry, retiring rooms and
miscellaneous terminal expenses from the first group, while in the second group
proportion of the cost of transportation staff responsible for train passing,
maintenance of track, signal and other equipment and maintenance of facilities
en route are taken. Sub-groups under the
coaching service consist of passenger, parcel and other coaching services etc.
and dining car facilities. These are
studies separately and methodology worked out for coaching analysis allocates
apportioned expenses directly related to these services at source and
proportionately distributes other joint expenses from stage I.
(Please see next page for Flow Chart
of Coaching Expenses)
APPENDIX
Coaching
Expenses-flow Chart
Railway
…… Gauge.. …Year (Figures in lakhs of Rs.)
Coaching
Expenses includes EMU & Rail Cars but excludes Road and Ferry Services
etc.
Coaching
Expenses excluded EMU & Rail Cars but includes over-heads and excludes
Central charges
Rs. % age-Stage-I
(……..
Running Stage-2 …..
(
(
(
(
(
(
(
(
(
(
(
….. Terminal Stage-7 ….
Rs. %
Note: Expenses to be taken from
Form 2 Summary Line 36.
|
(Stage-3 Passenger
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-5 Parcels etc.
(Mail & Exp: Rs. %
(Ordy. Rs.
%
(Stage-6 Catering
(Mail & Exp: Rs. %
(Stage-8 Booking
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-10 Ticket
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-12 Enquiry etc.
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-14 Special Services
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-16 Misc. Terminal
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-18 Parcels etc.
(Mail & Exp: Rs. %
(Ordy. Rs. %
(Stage-19 Catering
(Mail & Exp: Rs. %
(Ordy. Rs. %
|
Running-Passenger:
|
||||
Stage-4
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
IIIAC/
SL
|
Terminal
Stage-9 (Booking)
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
AC/
SL
|
Stage-11 (Ticket)
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
AC/
SL
|
Stage-13 (Enquiry etc.)
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
AC/
SL
|
Stage-15 (Spl. Services)
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
AC/
SL
|
Stage-17 (Misc. Terminal)
Mail/Exp
Ordy
|
AC I
II
|
II
II
|
IIAC
|
AC/
SL
|
Summary
- Total Coaching expenses Rs.
- Share of Road & Ferry Services Rs.
- Coaching Expenses Rs. Crs.
- Share of EMU & Rail Car Services Rs. Crs.
- Crores of Rs. (Line 3 Minus line 4)
Expenses
|
Earnings
|
Loss
|
Sundries
|
Total
Loss
|
1
|
2
|
3
|
4
|
5
|
COSTING OF EMU SERVICES
Introduction
Services in suburban areas comprise of
EMU and Non-EMU suburban services operated in the suburban areas with steam,
diesel and electric services. Expenses
of EMU services are apportioned separately due to the following reasons:
(i) Density
of traffic is very heavy in suburban sections
(ii) Use
and wear and tear of rails, rolling stock is very intensive
Detailed instructions for evaluation
of cost of operation of EMU services are given in Appendix-III to Manual of
Statistical Instructions Vol.II.
The general method for segregating EMU expenses and
finally evaluating profit and loss is given below:
(i)
Ordinary working expenses: For evaluating cost of operation of EMU
Services direct costs such as entire expenditure on a station served only by
EMU and cost of repair and maintenance of EMU stock are allocated to these
services, including cost of staff working only for EMU services and cost of
repair and maintenance of EMU stock.
Where the services are confined to a particular division, expenditure on
the Division only is taken into account for working out the cost instead of
total expenditure of the entire Railway.
For repairs and maintenance of Civil Engineering assets including track,
allocation is made between EMU other coaching and goods services on the basis
of respective gross tonne kilometers of respective trains. For joint staff common to EMU as well as other
coaching services, the pay and allowances of such staff are apportioned in the
ratio of number of respective trains run.
On electrical side, cost of electric energy consumed is apportioned in
the ratio of power consumption by EMU services to the total power consumption
by all services under electric traction.
Expenses under repairs and maintenance of overhead equipment are
apportioned in the ratio of train
kilometers of EMU to total Kilometrage of all services under electric
traction. General overheads are then
allocated on pro-rata basis viz. in the ratio of expenses apportioned to EMU
services to the total expenses of the Division.
(ii) Depreciation: Charges are calculated for EMU stock on
present day cost on straight line basis, taking the normal life of the assets
as 25 years. For other assets,
depreciation is calculated on the booked cost.
(iii) Dividend: Interest charges for EMU services are first
calculated on booked value of assets charged to capital to the end of the year,
at rates prescribed for calculating dividend to general revenues. These are then adjusted pro-rata to the
actual dividend payment to general revenues.
Same principle applies to the assets created out of Capital fund because
the rate of interest (earned) on Capital Fund is the same as the rate for
payment of Dividend.
Questions & answers
Q.1 An efficient costing system is a sine qua
non for a sound commercial undertaking.
Discuss this statement w.r.t. Traffic costing developed on Indian
Railways highlighting the limitations.
Or
What is your
opinion are the limitations and shortcomings of traffic costing developed on
Indian Railways?
Ans.
(1)
The Traffic costing data produced on
the Railways has serious shortcomings.
The present system generates aggregated costs for various facets of
operation for the Zonal Railways as a whole, whereas the financial accounts are
prepared division-wise. There are wide
variations in the costs from one Zonal Railway to another, which remains unexplained. The figures appear prima facie
unreliable. The Railways instead of
concentrating on production of aggregated costs should which over to route-wise
costing on each Division.
(2)
A serious drawback of the existing
system is that a major portion (75 per cent) for the expenditure on repairs and
maintenance is common to both coaching and goods services and is bifurcated on
assumptions which can be questioned.
There is urgent need for developing suitable parameters for
apportionment of joint costs.
(3)
The traffic cost data is available
quite late, usually after 18 months of the close of the financial year by which
time it is only of historical interest and cannot be profitably used by the
management. It is essential that the
costing system should be integrated with the management information system and
provide useful traffic costing data in real time. With gradual computerization, it should be
possible for the Railways to produce costing reports in time and quarterly
instead of only once a year so that the effect of seasonal variations on the
cost of operations can be gauged.
(4)
In the computation of unit costs, the
element of depreciation, interest and freight charges have not been included in
a scientific and reasonable proportion.
This defect may be corrected.
(5)
The variation in unit cost from one Zonal
Railway to another and within a Zonal Railway from year to year should be
studied in greater detail so that cost centres with wasteful and avoidable
expenditure are identified and corrective and remedial steps are possible. When the Division-wise costing is introduced
the reasons for variations from one Division to another in a Zonal Railway
should be analysed by the concerned Zonal Railway and suitable steps taken to
eliminate waste and control costs.
(6)
Under the existing system the Traffic
Managers concentrate only on achieving physical targets without relating them
to costs and profits to be derived. In
other words there is lack of awareness of the Profit Centre approach.
Q.2 What
is the purpose of cost accounting? To
what extent has this been achieved in Railway workshops where cost accounting
has been in use for some time.
Or
To what extent has traffic costing helped in
rational revision of rates and freight structure and attracting more traffic?
Ans. Traffic costing is of immense value in comparing financial working
of different Zonal Railways, taking policy decisions in the matter of fare and
freight structure, quotation of station to state rates financial appraisal of
Railway projects and cost control. With
the very large investments that are envisaged in the next five year plans and
emphasis placed on self-reliance transport costing will gain importance and
become a vital tool in the hands of management for taking major policy
decisions in areas which are nerve centres and control the profitability of the
system. The exercises conducted by the
Traffic costing cells in determining the movement of selected commodities are
routine rituals and should be done away with.
Instead the Railways should switch over to stream-wise costing. About 75% of goods traffic moves arterial
routes (between 4 Metropolitan cities) and most of this traffic comprises 8
bulk commodities (Coal, Food grains, Steel Iron Ore, Cement, Mineral Oil,
Fertilizers, Limestone and Dolomite).
Stream wise costing of these commodities
over the arterial routes will be of great value of the management in fixing the
classification of various commodities more accurate financial appraisal of
Railway functioning and of projects to be carried out on these routes which are
already saturated etc. Successive
committees have brought out the importance of imparting cost orientation to the
fare and freight structure. The Railways
should leave the habit of marking ad hoc changes and aberrations and instead
adopt a rational approach towards formulation of their fare and freight
structure.
The costing data produced by a
Railways being aggregative in nature and unreliable cannot be used in bringing
about requisite changes in their fare and freight. This is a serious handicap and must be corrected. They should make their fare and freight
structure cost based; on the lines suggested by Rail Tariff Enquiry Committee
and annually revise their fares and freight on the basis of escalation formula.
The introduction standard costing of
each facet of traffic operation is a different proposition. Instead for cost control, Railway costing
cells must conduct special on-the-spot studies and investigation of important
marshalling yards, goods sheds, terminals etc.
They will, this way, be able to identify and eliminate areas of waste
and unjustified expenditure. Traffic
costing organization on the Railways is weak and should be strengthened on the
basis of World Bank report.
Q.3 Bring out clearly the special
characteristics and constraints of Traffic costing and its methodology as
compared to costing in Commercial understandings.
Ans. Traffic Costing Methodology
The revenue working expenses on each
Division, Workshop and the headquarters office of a Zonal Railways are compiled
separately by the attached accounting units.
These are then consolidated for the Zonal Railways as a whole.
Under the existing system, though the
financial accounts are maintained division-wise or workshop-wise, the Zonal
Railway is considered the operating unit for the purpose of ascertaining
transport cost for various facets of Traffic operations. The process of computation begins as soon as
the financial accounts of the Zonal Railways are closed for the year.
The revenue expenses are first
segregated by the Traffic costing cell located at the Zonal Headquarters
gauge-wise. The expenses, which can be
identified as pertaining to a particular gauge, are allocated to the
gauge. For apportionment of the balance
expenses under different gauges, detailed instructions have been issued by the
Railway Board to the Zonal Railways.
The next stage is to segregate the
expenditure for each gauge between coaching and goods service. Here also the principle followed is that the
expenses, which are attributable, either to coaching and goods services are
allocated to the respective service. The
remaining expenses are bifurcated between the two services on the basis of
certain ratios developed with the help of statistical analysis, surveys and experience
and knowledge of engineers and the field staff.
Once the annual working expenses are
segregated gauge-wise and service-wise, the costing organization undertakes
computation of various unit costs for goods services and passenger
services. Various process involved in
this working are discussed below separately for goods and passenger services.
Traffic
Costing of Goods Services
The annual working expenses for goods
services including appropriation to Depreciation Reserve Fund, and payment of
interest on capital at charge are separated among various functional groups of
services i.e., Terminal, running, marshalling transshipment at break of gauge
point, special service for smalls (repacking etc.) and general overheads. Some of these functional groups of services
are further divided into the operations performed within each service.
The working expenses for each
functional group of service are then divided by the relative revenue units of
service to produce unit costs, for example the expenses attributable to running
when divided by the total number of wagon kilometer would give the line haul
cost per wagon kilometer. Like this
several other unit costs are computed such as cost of documentation per
invoice, cost of transshipment per tonne, line haul cost per 1000 GTKMs.
The cost statements prepared by the
Zonal Railways are sent to the Railway Board.
The Railway Board compiles them in a final statement, working out the
unit costs for the Rail system as a whole separately for BG/MG. The unit costs, Zonal Railway-wise and for
the system as a whole, separately for each gauge are sent to each Zonal Railway
through a booklet titled “summary of the end results freight services unit
costs.”
Traffic
Costing of Coaching Services
The share of expenses on coaching
services excluding EMU and Rail car services are apportioned between terminal
and running costs. The terminal costs
are further apportioned amongst ticket booking, ticket checking,
reservation/enquiry, parcels, luggage, and postal and catering services. The running expenses are distributed among
passenger services, parcels, luggage, and postal and catering services. The next stage to apportion these expenses
into Mail/Express and ordinary Trains.
The expenses are then distributed amongst various classes of travel.
On the basis of the methodology and
the apportionment factors laid down by the Railway Board, the unit costs are
developed by each Zonal Railway and an All India average compiled in the
Railway Board.
Q.4. What
is meant by Activity Based Unit Costing System (ABUCS)? Describe its salient features and merits.
Ans. On Indian Railways, though the existing
accounting classification is activity based, yet it does not serve the
objective of responsibility. Accounting
because there is no system of determining the costs incurred – direct and
indirect at the Activity Centre level i.e. at functioning level, usually headed
by a senior subordinate such as IOW, PWI, SI, TCI, Loco Foreman etc.) who are
concerned more with achieving the physical targets or ensuring proper
maintenance functions without any regard to the costs involved. To this extent, the existing system of
budgeting and expenditure control based thereon also suffers, particularly
because the costs are incurred at functions level while the expenditure data
are compiled in the Accounts Department.
In order to remove the above
deficiency, a High Powered Committee (Hassan Iqbal Committee) appointed by the
Ministry of Railway for identification of Cost/Profit Centres, development of
Accounting system and modernization of Financial Management Information System
on Indian Railways have suggested in their report (1994) that with the aim of
having Cost (Performance) Centre, Railways should introduce the Activity Based
Unit Costing System (ABUCS). The system
envisages, costing at three levels of costs incurrence viz:
(i)
at the level of functional
unit/Activity Centre;
(ii)
at the Divisional level; and
(iii)
at the Zonal/Headquarters level.
The salient features of the above
system, at each level are:
(i) Functional
Level: The direct cost of an
Activity will be worked out under:
(a)
Labour
(b)
Material
(c)
Plant and Equipment
(d)
Others (General)
The methodology suggested is as under:
Labour Cost: Based on hourly cost worked out from the
total cost or wages, allowances, bonus, leave salary, pensionary benefits, duly
updated periodically.
Material Cost: Periodical updated costs to be provided.
Plant and Equipment: To be worked out by Divisions for each group
of plants and equipment, taking into account the cost of acquisition, operation
and maintenance etc. Other costs may be provided on the basis of the relevant
prices etc.
The total cost incurred by the
Activity Centre will be divided by the physical units of activity produced in a
given period (usually a month). This
will be done by preparing a simple cost sheet by posting the costs on daily
basis.
The unit costs will be furnished to
the Divisional Office which will verify accuracy prima facie and thereafter
undertake comparison of these costs of different units is order to evolve the
strategy for achieving the best unit cost at other units, Eventually standard
and unit costs will be evolved to maintain the temp of increasing productivity
at reduced costs.
(ii) The Divisional Level: The Divisions will also document the direct
costs incurred by them at Divisional level and thereafter allocate these to
each unit of each Activity Centre on predetermined basis. Thereafter, they will work out the average
(total) unit cost of each activity on the Division and furnish it to
Headquarters, furnishing the break up of that cost at Functional and Divisional
level.
(iii) Zonal level: The Zonal/Headquarters will act in a similar
manner as the Division and after comparing the costs at divisional level, of
different divisions, allocate the costs incurred at zonal level on
pre-determined basis and thereafter work out the total (average) unit cost of
each activity thereafter, an inter-zonal level comparison may also be
undertaken.
For
the above purpose, the elements such as depreciation and interest on capital will
be left out until detailed Assets Registers are introduced completely on Indian
Railways. However, the gross total of
these costs should generally reconcile with aggregates of financial accounts at
the close of the accounting period.
Merits:
(i)
Wastage of resources will be minimized
through cost control/reduction.
(ii)
Spare/idle capacities/resources will
get identified for better utilization and reduction in costs on fresh
acquisitions/augmentation of labour strength.
(iii)
Decision making for diversifications,
Buy or Make, etc. will be facilitated.
(iv)
It will help identify factors such as
speed restrictions, light running of engines/empty trains under load haulage,
and other impediments.
(v)
It will promote competitiveness among
Units/Divisions/Zonal Railways and thus increase productivity or help achieve
greater economy.
(vi)
It will enable fixing prices for
services rationally.
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