Operating Costing Cost and Management Accounting

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Operating Costing: It is a method of ascertaining costs of providing or operating a service. This

method of costing is applied by those undertakings which provide services rather than production
of commodities. This costing method is usually made use of by transport companies, gas and water
works departments, electricity supply companies, canteens, hospitals, theatres, schools etc.
The cost units usually used in the following service undertakings are as below :
Transport service − Passenger km., quintal km., or tonne km.
Supply service − Kw hr., Cubic metre, per kg., per litre.
Hospital − Patient per day, room per day or per bed, per operation etc.
Canteen − Per item, per meal etc.

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Cinema − Per ticket.
Absolute (weighted average) tonnes-kms: Absolute tonnes-kms., are the sum total of tonnes-kms

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., arrived at by multiplying various distances by respective load quantities carried.
Commercial (simple average) tonnes-kms : Commercial tonnes-kms., are arrived at by
multiplying total distance kms., by average load quantity.
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A lorry starts with a load of 20 tonnes of goods from station A. It unloads 8 tonnes at station B and rest
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of goods at station C. It reaches back directly to station A after getting reloaded with 16 tonnes of
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goods at station C. The distance between A to B, B to C and then from C to A are 80 kms., 120 kms., and
160 kms., respectively. Compute ‘Absolute tonnes-kms.,’ and ‘Commercial tonnes-kms.
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From the following information, calculate the bus fare to be charged from each passenger:
A) Delhi to Agra b) Delhi to Bhiwani c) Delhi to Chandigarh:

Delhi to Agra 200 Kms

A

Delhi to Birwani 120 Kms

C

Delhi to Cha digarh 250 Kms

B) Effective passenger Kms 372,000
C) Total Cost (excluding the conductor’s commission @ 15% and passenger Tax @ 5% of total

takings) Rs. 148,800

D) Desired Profit 30% on total takings
(Ans: Rs.160, Rs.96 and Rs.200)
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Question No.1
SMC is a public school having five buses each plying in different directions for transport of it’s
school students. In view of a large number of students availing of the bus service, the buses works
tow shifts daily both in morning and in the afternoon. The buses are garaged in the school. The
work load of the students has been so arranged that in the morning the first trip picks up the senior
students and the second trip plying an hour later picks up the junior students. Similarly in the
afternoon the first trip drops the junior students and an hour later the second trip takes the senior
students home.
The distance travelled by each bus one way in 8 Kms. The school works 25 days in a month and

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remains closed for vacation in may, june and December. Bus fee, however, is payable by the
students for all the 12 months of the year.

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The details of expenses for the year are as under:
Driver Salary Rs. 450 per month per driver
Cleaner Salary (salary payable for 12 months)
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Rs.350 per month
One cleaner employed for all the five buses
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License fee, Taxes etc Rs.860 per bus per annum
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Purchase price of bus Rs.150,000 each

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(life 12 years)
Scrap value Rs.30,000
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Diesel cost Rs. 2 per litre

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Each bus gives an average mileage of 4 Kms per litre of diesel.

Seating capacity of each bus is 50 students
The seating capacity is fully occupied during the whole year.
A

Students picked up and dropped within a range upto 4 Kms of distance from the school are charged
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half fare and fifty percent of students travelling in each trip are in this category. Ignore interest.
Since the charges are 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 five

buses for a year.

ii. Work out the average cost per student per month in respect of

a. Students coming from a distance of upto 4 Kms from the school and

b. Students coming from a distance beyond 4Kms from the school.

Operating Costing Cost and Management Accounting
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Question No.2.
A mineral is transported from two mines – A and B and unloaded at plots in a railway station. Mine
A is at a distance of 10 Kms, and B is at a distance of 15 Kms from rail head plots. A fleet of lorries of
5 tonnes 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 takes 10 minutes to
unload at the rail head. At mine A, loading time averages 30 minutes per load while at the mine ‘B’,
loading time averages 20 minutes per load.
Drivers wages, depreciation, insurance and taxes are found to cost Rs. 9 per hours operated. Fuel,
oil, repairs and maintenance cost Rs.1.2 per Km.

AN
Draw up a statement, showing the cost per tone Kilometer of carrying mineral from each time.
Question No.3.

C
Global Transport Ltd. charges Rs.90 per ton for its 6 tons truck lorry load from city A to city B. The
charges for the return journey are Rs.84 per ton. No concession or reduction in these rates is made
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for any delivery of goods at an intermediate station C. In January 1997 the truck made 12 outwards
journeys for city B with full load out of which 2 tones were unloaded twice in the way of city C. The
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truck carried a load of 8 tons in it’s return journey for 5 times but once caught by police and Rs.1,
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200 was paid as fine. For the remaining trips the truck carried full load out of which all the goods on
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load were unloaded once at the city C. The distance from city A to city C and city B are 140 Km and
300Km respectively. Annual fixed costs and maintenance charges are Rs.60,000 and 12,000
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respectively. Running charges spect during January, 1997 are Rs.2,944.

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You are required to find out the cost per absolute ton kilo meters and the profit for January, 1997.
Question No 4. 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
A

buses work two shifts daily both in the morning and in the afternoon. The buses are garaged in the
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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 kms. 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 2003-2004 are as under:
Driver's salary – payable for all the 12 in month. Rs. 5,000 per month per drive.
Operating Costing Cost and Management Accounting
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Cleaner's salary payable for all the 12 months Rs.3,000 per month per cleaner (one cleaner has
been employed for every five buses).
Licence Fees, Taxes etc. Rs.2,300 per bus per annum
Insurance Premium Rs. 15,600 per bus per annum
Repairs and Maintenance Rs. 16,400 per bus per annum
Purchase price of the bus Rs. 16,50,000 each Life of the bus 16 years Scrap value Rs.1,50,000
Diesel Cost Rs. 18.50 per litre
Each bus gives an average of 10 kms per litre of diesel. The seating capacity of each bus is 60
students. The seating capacity is fully occupied during the whole year.

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The school follows differential bus fees based on distance traveled as under:

Students picked up and Bus fee Percentage of students availing

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dropped within the range of this facility
distance from the school

4 kms 25% of Full

-I 15%
8 kms 50% of Full 30%
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16 kms Full 55%
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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
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a year.
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(ii) Work out average cost per student per month in respect of: (a) Students coming from a
distance of upto 4 kms from the school. (b) Students coming from a distance of upto 8 kms from the
school; and (c) Students coming from a distance of upto 16 kms from the school
A

(Ans: ii(a) 59.34 (b)118.68 (c )237.36)

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Question No.5 A Club runs a library for its members. As part of club policy, an annual subsidy of
upto Rs.5 per member including cost of books may be given from the general funds of the club. The
management of the club has provided the following figures for its library department.
Number of Club members 5,000
Number of Library members 1,000
Library fee per member per month Rs.100
Fine for late return of books Rs. 1 per book per day
Average No. of books returned late per month 500
Operating Costing Cost and Management Accounting
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Average No. of days each book is returned late 5 days

Number of available old books 50,000 books
Cost of new books Rs. 300 per book
Number of books purchased per year 1,200 books
Cost of maintenance per old book per year Rs. 10
Staff details No. Per Employee Salary per month (Rs.)
Librarian 01 10,000
Assistant Librarian 03 7,000
Clerk 01 4,000

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You are required to calculate:
(i) the cost of maintaining the library per year excluding the cost of new books;

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(ii) the cost incurred per member per month on the library excluding cost of new books; and
(iii) the net income from the library per year. If the club follows a policy that all new books must be
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purchased out of library revenue (a) What is the maximum number of books that can be purchased
per year and (b) How many excess books are being purchased by the library per year? Also,
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comment on the subsidy policy of the club.
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Question No. 6 A transport company has been given a 40 kilometre long route to run 5 buses. The
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cost of each bus is Rs. 6,50,000. The buses will make 3 round trips per day carrying on an average
80 percent passengers of their seating capacity. The seating capacity of each but is 40 passengers.
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The buses will run on an average 25 days in a month. The other information for the year 2010-11
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are given below: Garage rent Rs. 4,000 per month

Annual repairs and maintenance Rs. 22,500each bus
Salaries of 5 drivers Rs. 3,000 each per month
A

Wages of 5 conductors Rs. 1,200 each per month

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Manager’s salary Rs. 7,500 per month

Road tax, permit fee, etc. Rs.5,000 for a quarter
Office expenses Rs. 2,000 per month
Cost of diesel per litre Rs. 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 33 1/3 percent on taking (total receipts from passengers).
Operating Costing Cost and Management Accounting
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Question No.7 A transport company has 20 vehicles, which capacities are as follows:
No. of Vehicles Capacity per vehicle
5 9 tonne
6 12 tonne
7 15 tonne
2 20 tonne
The company provides the goods transport service between stations ‘A’ to station ‘B’. Distance
between these stations is 200 kilometres. Each vehicle makes one round trip per day an average.

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Vehicles are loaded with an average of 90 per cent of capacity at the time of departure from station
‘A’ to station ‘B’ and at the time of return back loaded with 70 per cent of capacity. 10 per cent of

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vehicles are laid up for repairs every day. The following information are related to the month of
October, 2008:
Salary of Transport Manager
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Rs 30,000
Salary of 30 drivers Rs. 4,000 each driver
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Wages of 25 Helpers Rs. 2,000 each helper
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Wages of 20 Labourers Rs. 1,500 each labourer

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Consumable stores Rs. 45,000

Insurance (Annual) Rs. 24,000
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Road Licence (Annual) Rs.60,000

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Cost of Diesel per litre Rs. 35

Kilometres run per litre each vehicle 5 Km.
Lubricant, Oil etc. Rs. 23,500
A

Cost of replacement of Tyres, Tubes, other parts etc. Rs. 1,25,000

C

Garage rent (Annual) Rs. 90,000

Transport Technical Service Charges Rs. 10,000
Electricity and Gas charges Rs. 5,000
Depreciation of vehicles Rs. 2,00,000
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 is charged Rs.28,000 for the service rendered by the workshop during October, 2008.
During the month of October, 2008 operation was 25 days.
You are required:
Operating Costing Cost and Management Accounting
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(i) Calculate per ton-km operating cost.

(ii) Find out the freight to be charged per ton-km, if the company earned a profit of 25 per cent on
freight.
Question No.8 A company runs a holiday home. For this purpose, it has hired a building at a rent of
Rs. 10,000 per month along with 5% of total taking. It has three types of suites for its customers, viz
., single room, double rooms and triple rooms. Following information is given:
Type of suite Number Occupancy percentage
Single room 100 100%
Double rooms 50 80%

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Triple rooms 30 60%
The rent of double rooms suite is to be fixed at 2.5 times of the single room suite and that of triple

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rooms suite as twice of the double rooms suite.
The other expenses for the year 2006 are as follows:
Staff salaries
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14,25,000
Room attendants’ wages 4,50,000
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Lighting, heating and power 2,15,000
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Repairs and renovation 1,23,500

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Laundry charges 80,500

Interior decoration 74,000
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Sundries 1,53,000
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Provide profit @ 20% on total taking and assume 360 days in a year. You are required to calculate
the rent to be charged for each type of suite.
Question No.9 Rose bud school has a total of 150 students consisting of 5 sections with 30 student
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per section. The school plans a picnic around the city during the weekend to places such as zoo, the
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park, the planetarium etc. A private transport operator has come forward to leaseout the bus for
taking the students. Each bus will have a maximum capacity of 50(excluding 2 seats reserved for
the teachers accompanying the students). The school will employ two teachers for each bus, paying
them an allowance of Rs. 50 per teacher. It will also lease out the required number of buses. The
following are the other cost estimates:
Break fast Rs.5 per student
Lunch Rs.10 per student
Tea Rs.3 per student
Entrance fee of zoo Rs.2 per student
Operating Costing Cost and Management Accounting
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Rent Rs.650 per bus

Special permit fee Rs. 50 per bus
Block entrance fee at the planetarium Rs.250
Prizes to students for games Rs.250
No cost are incurred in respect of accompanying teachers. (except the allowance of Rs.50per
teacher). You are required to prepare a statement showing the total cost and also average cost per
student for the levels of 30. 60, 90, 120 and 150 students.
Question No. 10 Nepal Yayayat owns a bus which runs according to the following schedule:
1. Kathmandu to Butwal and back, the same day.

AN
Distance covered: 150 kms one way.
Number of days run each month: 8

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Seating capacity occupies: 90%
2. Kathmandu to Narayanghat and back the same day.
Distance covered
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120 kms one way.
Number of days run each month: 10
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Seating capacity occupied: 85%
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3. Kathmandu to surkhet and back the same day

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Distance covered: 270 kms one way.

Number of days run each month: 6
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Seating capacity occupied: 100%

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Following are the other details:

Cost of bus Rs.600000
Salary of Driver Rs.2800 Pm
A

Salary of conductor Rs.2200 Pm

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Salary of the part time accountant Rs.200 Pm

Insurance of the bus Rs.4800 Pa
Diesel consumption 4 Kms per litre at Rs.6 per Litre
Road Tax 1500 P.a.
Lubricating oil Rs.10 per 100 Kms
Permit fee Rs.315 P.m.
Repair and maintenance Rs.1000 p.m.
Depreciation of the bus @20% P.a.
Seating capacity of the bus 50 persons
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Passenger tax is 20% of the total takings

Required: Calculate the busfare to be charged from each passenger to earn a profit of 30%
on total takings. The fares to be indicated per passenger for the journeys:
i. Kathmandu to Butwal

ii. Kathmandu to Narayanghat

iii. Kathmandu to Surkhet

Question No 11. A factory which uses a large amount of coal is situated between two collieries X
and Y, the former being 5 Kms and the later 10 kms distant from the factory. A fleet of lorries of 5
tonne carrying capacity is used for the collection of coal from the pitheads. The lorries average a

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speed of 20kms per hour when running and regularly take 10 minute in the factory premises to
unload. At the colliery Y, 20 minutes per load.

C
Driver’s wages, license, insurance, depreciation, garage and similar charges are noticed to cost Rs.6

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per hour operated. Fuel, oil, tyres, repairs and similar charges are noticed to cost Rs.6 per hour
operated. Fuel, oil, tyres, repairs and similar charges are noticed cost 60 paisa per kilometer run.
Required:
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Draw up a statement showing the cost per tone kilometer of carrying coal from each colliery? If the
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coal is of equal quality and price at the pithead, from which colliery should the purchase be made?
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Question No. 12 Thakali Kitchen serves fixed lunch/dinner thali to it’s customers and provides you
the following information for the month of April 2014:
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Wheat flour 9,000

As

Vegetables 4,500
Oil 3,600
Spices 900
A

Wage of cook 3,000

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Wage of waiter 1,500

Wage of kitchen assistant 2,400
Water 300
Power and heating 750
Crockery 225
Cleaning materials 150
Rent 2,175
No of thalis served 1560 (including 60 thalis served to drivers and conductors )
Profit margin 33 1/3% on sales
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It is the policy to serve drivers and conductors free of charge.

Required: Calculate the selling price to be charged for each thali.

Question No. 13 A hotel has a capacity of 100 single rooms and 20 double rooms. The average
occupancy of both single and double room is expected to be 80% throughout the year of 365 days.
The rent for the double room has been fi xed at 125% of the rent of the single room. The costs are
as under:
Variable costs: Single room Rs.220 each per day, double room Rs.350 each per day

Fixed costs: Single room Rs.120 each per day, double room Rs.250 each per day

AN
Calculate the rent chargeable for single and double rooms per day in such a way that the hotel earns
a margin of safety of 20% on hire of room.

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Question No.14 A lodging home is being run in a small hill station with 50 single rooms. The home
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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
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following are the cost estimates and other details for the year ending on 31st March 2006. [Assume
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a month to be of 30 days].
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I] Occupancy during the season is 80% while in the off- season it is 40% only.
II] Expenses:
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o Staff salary [Excluding room attendants] Rs.2, 75, 000

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o Repairs to building Rs.1, 30, 500

o Laundry and linen: Rs.40, 000
o Interior and tapestry: Rs.87, 500
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o Sundry expenses: Rs.95, 400

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III] Annual depreciation is to be provided for buildings @ 5% and on furniture and equipments @
15% on straight-line basis.
IV] Room attendants are paid Rs.5 per room day on the basis of occupancy of the rooms in a month.
V] Monthly lighting charges are Rs.120 per room, except in four months in winter when it is Rs.30
per room and this cost is on the basis of full occupancy for a month.
VI] Total investment in the home is Rs.100 lakhs of which Rs.80 lakhs relate to buildings and
balance for furniture and equipments.
You are required to work out the room rent chargeable per day both during the season and the off-
season months on the basis of the foregoing information.
Operating Costing Cost and Management Accounting
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Treatment of depreciation and interest: Depreciation if related to effluxion of time, may be

treated as fixed and if related to activity level, it may be treated as variable cost.

If information about interest is explicitly given, it may be treated as fixed cost.

Standard Load - An alternative unit for the distribution of transport cost is the ‘standard’ load.
Where the goods to be transported are of varying bulk and weight, the calculation of actual number
of tonne-kilometres is not an easy matter. For example, if a business delivers its own products by its
own transport, the cost per tonne-kilometres may be most misleading, for an article may have a

AN
bulk which is twice that of the other, though of the same weight. In such a case ‘standard load’ is
selected as the unit, i.e., the load which a lorry would carry. This would have reference both to bulk
and weight and would give an efficient method for distributing the cost of transport over different

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departments. Thus, if the turnover of various departments is reduced to ‘standard load’ by first
calculating their weight and then the bulk of article produced, the costs of distributing the product
would be easily ascertained. -I
(Ans: Season 197 and off season 98.5)
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Question No. 15 A company is considering three alternative proposals for conveyance facilities for
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its sales personnel who has to do considerable traveling, approximately 20,000 kilometres every
year. The proposals are as follows: (i) Purchase and maintain its own fleet of cars. The average cost
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of a car is Rs. 1,00,000. (ii) Allow the Executive use his own car and reimburse expenses at the rate
of Rs. 1.60 per kilometer and also bear insurance costs. (iii) Hire cars from an agency at Rs. 20,000
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per year per car. The company will have to bear costs of petrol, taxes and tyres.

The following further details are available: Petrol Rs.0.60 per km. Repairs and maintenance Rs.0.20
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per km. Tyre Rs.0.12 per km. Insurance Rs.1200 per car per annum Taxes Rs.800 per car per
annum Life of the car: 5 years with annual mileage of 20,000 kms. Resale value: Rs. 20,000 at the
end of the fifth year. Work out the relative costs of three proposals and rank them.
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Question No.16 A transport company has a fleet of three trucks of 10 tonne capacity each plying in
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different directions for transport of customer’s 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:

Truck No. One way distance No. of trips per day Load carried per trip/day tons

1 16 4 6
2 40 2 9
3 30 3 8
The analysis of maintenance cost and the total distance travelled during the last two years is as
under:
Year Total distance travelled Maintenance cost Rs.
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1 160,200 46,050

2 156,700 45,175

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

Diesel : Rs. 10 per litre. Each litre gives 4 kms per litre of diesel on an average

Driver salary: Rs. 2000 per month

License and Taxes: Rs. 5000 per annum per truck

Insurance: Rs. 5000 per annum for all the three vehicles

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Purchase price per truck: Rs. 300,000 life 10 years. Scrap value at the end of life is Rs.10,000

Oil and sundries: Rs.25 per 100 Kms run

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General overhead: Rs. 11,084 per annum

The vehicles operate 24 days per month on an average. -I

Required:
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i. Prepare an annual cost statement covering the fleet of three vehicles

ii. Calculate the cost per Km. run
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iii. Determine the freight rate per tonne km to yield a profit of 10% on freight

Question No. 17 An article passes through five hand operations as follows:

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Operation No Time per article Grade of worker Wage rate per hour
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1 15 min A Rs. 0.65

2 25 min B Rs.0.50
A

3 10 min C Rs.0.40
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4 30 min D Rs.0.35

5 20 min E Rs.0.30

The factory works 40 hours a week and the production target is 600 dozens per week. Prepare a
statement showing for each operation and in total the number of operations required, the labour
cost per dozen and the total labour cost per week to produce the total targeted output.

Question No. 18 In order to develop tourism, Buddha Air has been given permit to operate three
flights in a week between X and Y cities (both side). The airlines operate 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 Rs.72,00. The cost of operations of flights is:
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Fuel cost (variable) Rs.96,000 per flight

Foods served on board on non chargeable basis Rs.125 per passenger

Commission 5% of fare applicable for all booking

Fixed Costs

Aircraft lease Rs.350,000 per flight

Landing charges Rs.72,000 per flight

Required:

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i. Calculate the net operating income per flight
ii. The airlines expects that it’s occupancy will increase to 108 passengers per flight if the fare
is reduced to Rs.6,720. Advise whether this proposal should be implemented or not.

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Question No. 19 An article undergoes three successive operations from raw material to finished
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product stage. The following information is available from the production record of particular
month:
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Operation No of pcs input No of pcs rejected No of pcs output
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1 12,000 4,000 8,000

2 13,200 1,200 12,000
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3 9,600 1,600 8,000

Find out what should be the input in the first operation in no. of pieces to obtain finished products
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of 100 pcs after the last operation.

Calculate the cost of raw material required to produce one piece of finished product from the
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following particulars:
Weight of the finished piece 100 gm per piece
Price of raw material Rs. 10 per Kg.
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Question No. 20 R Ltd makes a ready mixed cement and operates a small fleet of vehicles which
delivers the product to customers within it’s delivery area:
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General Data:
Maintenance records for the previous five years reveal the following:
Year Kms run Maintenance cost
1 170,000 13,500
2 180,000 14,000
3 165,000 13,250
4 160,000 13,000
5 175,000 13,750
Transport statistics reveals the following:
Vehicle No. of journeys each day Average tonnage to customer Avg. distance to customer
Tone kms
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1 6 4 10
2 4 4 20
3 2 5 40
4 2 6 30
5 1 6 60
There are 5 vehicles operating a five day week, for 50 weeks a year.
Standard cost data includes:
Drivers wage are Rs.500 per week
Supervisor wage Rs. 700 per week
Depreciation on a straight line basis with no residual value.
Cost life

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Loading equipment 1,000,000 5 years
Vehicles 300,000 each 5 years
Diesel/oil cost Rs.2 per km
Repairs cost Rs.0.50 per km

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Vehicle license cost Rs.4,000 per annum for each vehicle. Insurance cost Rs.6,000 per annum for
each vehicle. Tyre cost Rs.30,000 per annum in total.
Miscellaneous cost Rs.22,500 per annum in total
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You are required to calculate the standard rate per tone/km for operating the vehicle.
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(Ans.Rs.2.86 per ton km)
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Question No. 21 Hotel Dwarika has three categories of accommodation one room suites, two room
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suites and three room suites.

The following are the details of information pertaining to the operation of the hotel:
a. Annual expenses are as thus
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Staff salaries 1,000,000

172,000
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Repairs and Renovation

Interior decorations 400,000
Sundries 131,040
Laundry contract cost 200,000
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Room attendant’s salary

Rs.8 per day per single room, Rs.12 per day per double room and Rs.16 per day three room suite
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occupied in summer.
Rs.12 per day per single room, Rs.18 per day per double room and Rs.24 per day per three room
suite occupies during winter.
Lighting
Rs.40 for one suite per month if occupied for full month for both summer and winter
Rs.60 for two room suite per month and Rs.80 for three room suite per month, if occupied for full
month for both summer and winter.
Power
Rs.20 for one room suite, Rs.30 for two room and Rs.40 for three room suite, per month if occupied
for full month for both summer and winter.
Depreciation
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Building @5% on Rs.56,00,000

Furniture and Fixture @10% on Rs.400000
Air conditioning Equipment @ 10% on Rs.800,000
b. There are 200 one room suites, 60 two room suites and 40 three room suites in the hotel.
c. Normally 80% of one room, 60% of two room and 50% of three room suites are occupied in
summer. During winter 50% of one room, 40% of two room and and 20% of three room
suites are occupied.
d. Summer may be assumed for 8 months and winter 4 months duration. Normal days in a
month may be taken at 30.
e. Profit on cost is to be taken 25% so that interest on investment may also be covered in such
profits.

AN
The rent of two room suite is to be fixed at 1 ½ times of one room suite and that of three
room suite at double the one room suite.
You are required to prepare an operating cost statement of Dwarika Hotal for a year and

C
suggest the rent which should be charged for each type of suite on the basis of above
information.

(Ans: single 50 two room 75 and three room 100)

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