WHAT do you understand by Operating Costs? DESCRIBE its essential features and state where it can be usefully implemented?

(a) Operating Costs or Service Costing: These are the costs incurred by undertakings which do not manufacture any product but provide a service. Such undertakings for example are — Transport concerns, Gas agencies; Electricity Undertakings; Hospitals; Theatres etc. Because of the varied nature of activities carried out by the service undertakings, the cost system used is obviously different from that followed in manufacturing concerns. The essential features of operating costs are as follows: (1) The operating costs can be classified under three categories. For example in the case of transport undertaking these three categories are as follows: (a) Operating and running charges: It includes expenses of variable nature. For example expenses on petrol, diesel, lubricating oil, and grease etc. (b) Maintenance charges: These expenses are of semi-variable nature and includes the cost of tyres and tubes, repairs and maintenance, spares and accessories, overhaul, etc. (c) Fixed or standing charges: These includes garage rent, insurance, road licence, depreciation, interest on capital, salary of operating manager, etc. (2) The cost unit used is composite like passenger-mile; Kilowatt-hour, etc. It can be implemented in all firms of transport, airlines, bus-service, etc., and by all firms of distribution undertakings.