C. S.

EXECUTIVE : COSTING
TOPIC : OPERATING COSTING

Q.1. A cement manufacturing company is considering transportation of lime stone from its quarry to the
plant, situated at a distance of 25 km. The only means of transport is by road. Local transporters
have quoted ` 12, ` 12.50 and ` 13 per tonne with an escalation clause in respect of diesel oil costs.
The quantity of lime stone to be carried per month is 24,000 tonnes.
While examining the feasibility of departmental transport, the following facts came to be recognised.
a) Two types of trucks are available – 8 tonners and 10 tonners
b) The operating cost s and other details for the two types are as follows:
10 tonners 8 tonners
Purchase Price ` 2.5 lakh ` 2.0 lakh
Estimated useful life 5 years 5 years
Residual Value ` 40,000 ` 20,000
Km. per litre of diesel 3 4
Estimated, repairs and maintenance Cost per truck ` 2,000 p.m. ` 1,600 p.m.
Vehicle & Road Tax per quarter per truck ` 600 ` 600
c) Cost of diesel per litter is ` 2.00.
d) Each vehicle can make 5 trips (up and down) each day and can run on the average for 24 days
in a month.
e) Drivers are available at ` 400 p.m. each truck will require one driver but one additional driver will
be required for every 5 trucks.
f) A post of transport supervisor will be created at ` 1,000 per month.
g) It is possible to hire from a transport company 8 tonners at ` 6,000 p.m. per truck. The transport
company will bear vehicle and road tax as well as repairs and maintenance and driver’s salaries
but not the other operational costs, the post of transport supervisor will not then be needed.
Making any assumption that you consider to be important prepare a statement for submission to the
Board setting out the transport cost per tonne under various alternatives.

Q.2. Prakash Automobiles distributes its goods to a regional dealer using a single lorry. The dealer’s
premises are 40 kilometres away by road. The lorry has a capacity of 10 tonnes and makes the
journey twice a day fully loaded on the outward journeys and empty on return journeys. The
following information is available for a Four Weekly Period during the year 2007:
Petrol Consumption 8 kilometres per litre
Petrol Cost ` 13 per litre
Oil ` 100 per week
Driver’s wages ` 400 per week
Repairs ` 100 per week
Garage Rent ` 150 per week
Cost of Lorry (Excluding Tyres) ` 4,50,000
Life of Lorry 80,000 kilometres
Insurance ` 6,500 p.a.
Cost of Tyres ` 6,250
Life of Tyres 25,000 kilometres
Estimates sale value of Lorry at end of its life ` 50,000
Vehicle Licence Cost ` 1,300 p.a.
Other Overhead Cost ` 41,600 p.a.
The Lorry operates on a five day week.
Required:
a) A statement to show the total cost of operating the vehicle for the four weekly period analysed
into running costs and fixed costs.
b) Calculate the vehicle cost per kilometre and per tonne kilometre.

Q.3. Remix P.I.C. makes ready mixed cement and operates a small fleet of vehicles which delivers the
product to customers within its delivery area.

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TOPIC : OPERATING COSTING

General Data.
Maintenance records for the previous five years reveal.
Year Mileage of vehicles Maintenance Cost
1 1,70,000 13,500
2 1,80,000 14,000
3 1,65,000 13,250
4 1,60,000 13,000
5 1,75,000 13,750
Transport statistics reveal:
Vehicles Number of Average tonnage Average distance
journeys each day carried (tonnes) to customers (mile)
1 6 4 10
2 4 4 20
3 2 5 40
4 2 6 30
5 1 6 60
There are five vehicles operating a five day week, for 50 weeks a year.
Inflation can be ignored
Standard cost data include:
Driver’s wages are ` 150/- each per week.
Supervisor / relief driver’s wage is ` 200 per week.
Depreciation, on a straight like basis with no residual value:
Cost Life
Loading Equipment ` 1,00,000 5 years
Vehicles (each) ` 30,000 5 years
Petrol / oil cost 20 p. per mile.
Repairs cost 7½ p. per mile.
Vehicle licenses cost ` 400 p.a. for each vehicle.
Insurance costs ` 600 p.a. for each vehicle.
Tyres cost ` 3,000 p.a. in total.
Miscellaneous costs ` 2,250 p.a. in total.
Calculate a standard rate per tonne / mile of operating the vehicles.

Q.4. A city municipality arranges for the removal of its garbage by means of motor vehicular transport.
The following vehicles are maintained:
Number of Vehicles Specification
20 5 ton lorries
30 4 ton lorries
50 3 ton lorries
40 2 ton lorries
On an average, each lorry makes six trips a day and each trip covers an average distance of five
kilometres. Each lorry carries garbage weighing only 60% of its capacity. Taking an annual average,
20% of the lorries are laid up for repairs every day. The conservancy work is carried on daily.
The following are the monthly charges incurred on the conservancy transport:
Items of Cost Monthly Charges
Salary of the Superintendent 2,000
Salaries of three transport foremen 600 each
Wages of 140 drivers 150 each
Wages of 280 labourers 75 each
Consumable Stores 16,000
Petrol 60,000
Lubricants 15,000

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Replacement of tyres, tubes and other parts and accessories 5,000

Garage rent and rate s(adjusted in the books of the municipality) 3,000
Gas and electricity 1,000
Miscellaneous Expenses 12,000
There is a repairs workshop attached to the Motor Vehicles Department which also carries out repairs
for office cars and other vans and vehicles. 50% of the Superintending salary is debited to the
workshop and the stipulated charges to be borne by the conservancy transport department for the
services of the workshop are ` 10,000 a month.
Assuming that a month consist of 30 days, calculate the cost per ton km for the removal of garbage.

Q.5. SMC is a public school having five buses each plying in different directions for the transport of its
school students. In view of a large number of students availing of the buses work two shifts daily
both in the 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 senior students and the
second trip plying an hour later picks up the 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 8 kms. The school works 25 days in a month and
remains closed for vacation in May, June and December. Bus fee, however, is payable by the students
for all 12 months in a year.
The details of expenses for a year are as under:
Driver’s Salary ` 450 per month per driver
Cleaner’s Salary (Salary payable for all 12 months) ` 350 per month
(One cleaner employed for all the five buses)
Licence fee, taxes etc. ` 860 per bus per annum
Insurance ` 1,000 per bus per annum
Repairs & Maintenance ` 3,500 per bus per annum
Purchase price of the bus ` 1,50,000 each
Life 12 years
Scrap Value ` 30,000
Diesel Cost ` 2.00 per lire
Each bus given an average mileage of 4 km. of diesel.
Seating capacity of each bus 50 students.,
The seating capacity is fully occupied during the whole year.
Students picked up and dropped within a range upto 4 kms. Of distance from the school are charged
half fare and fifty per cent of the 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:
1) Prepare a statement showing the expenses of operation of a single bus and the fleet of five
buses for a year.
2) 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 4 kms from the school.

Q.6. Mr. X own a bus which runs according to the following schedule:
1) Delhi to Chandigarh and back, the same day.
Distance covered : 150 kms. One way
Number of days run each month : 8
Seating capacity occupied 90%
2) Delhi to Agra and back, the same day
Distance covered : 120 kms. one way
Number of days run each month : 10
Seating capacity occupied 85%.
3) Delhi to Jaipur and back, the same day
Distance covered : 270 kms. One way

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Number of days run each month : 6

Seating capacity occupied 100%
4) Following are the other details:
Cost of the bus ` 6,00,000
Salary of the driver ` 2,800 p.m.
Salary of the Conductor ` 2,200 p.m.
Salary of the part time Accountant ` 200 p.m.
Insurance of the bus ` 4,800 p.a.
Diesel consumption 4 kms per litre at ` 6 per litre
Road tax ` 1,500 p.a.
Lubricant Oil ` 10 per 100 kms.
Permit Fee ` 315 p.m.
Repairs and Maintenance ` 1,000 p.m.
Depreciation of the bus @ 20% p.a.
Seating capacity of the bus 50 persons
Passenger tax is 20% of the total takings. Calculate the bus fare to be charged from each passenger
to earn a profit of 30% on total takings. The fares are to be indicated per passenger for the journeys.
a) Delhi to Chandigarh
b) Delhi to Agra
c) Delhi to Jaipur

Q.7. A truck starts with a load of 10 tonnes of goods from Station P. It unloads 4 tonnes at Station Q and
rest of goods at Station R. It reaches back directly to Station P after getting reloaded with 8 tonnes of
goods at Station R. The distance between P to Q, Q to R and then from R to P are 40 kms, 60 kms
and 80 kms respectively. Compute ‘Absolute Tonne-Km’ and ‘Commercial Tonne-Km’.

Q.8. From the following particulars calculate cost per them and cost per unit of electricity generated for
the month of March, 2007.
1) Coal, 1,400 Quintal @ ` 15/- per Quintal.
2) Water 1,50,000 litres @ ` 1.00 per 1,000 litres.
3) Freight and handling of coal is 10% of the cost of coal.
4) Charge for Ash disposal ` 200.
5) Repairs and maintenance ` 2,000 per month.
6) Stores ` 1,500 per month.
7) Super vision and administrative cost ` 2,500 per month.
8) Wages and salaries of steam production unit 50 men @ 150/- per month.
9) Wages and Salaries of Generating unit 10 men @ ` 300 per month.
Residual
Cost Value Life
Steam production plant 62,000 2,000 10 years
Generating Plant 1,00,000 4,000 10 years
10) Apportionment of costs
Steam Generating
Production Plant
Supervision Cost 3 2
Stores 3 1
Repairs and Maintenance 1 1
Steam production 40,000 therms 4/5 of which is used for generation and the total electricity
generated is 3,00,000 units.

Q.9. Global Transport Ltd. charges ` 90 per ton for its 6 tons truck lorry load from city ‘A’ to city ‘B’. The
charges for the return journey are ` 84 per ton. No concession or reduction in these rates is made for
any delivery of goods at intermediate station ‘C’. In January, 2007 the truck made 12 outward

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journeys for city ‘B with fill load out at which 2 tons were unloaded twice in the way at city ‘C’. The
truck carried a load of 8 tons in its return journey for 5 times but once caught by policy and ` 1,200
was paid as fine. For the remaining trips the truck carried full load out of which all the goods on load
were unloaded once at city ‘C’, but it returned without any load once only from ‘C’ station to ‘A’
station. The distance from city ‘A’ to city ‘C’ and city ‘B’ are 140 km and 300 km respectively.
Annual fixed costs and maintenance charges are ` 60,000 and ` 12,000 respectively. Running charges
spent during January 2007 are ` 2,944.
You are required to find the cost per absolute ton-kilometre and the profit for January, 2007.
Q.10. The ‘Kangaroo Transport Ltd’. operates fleet of lorries. The records for lorry L-14 reveal the following
information for September, 2007:
Days maintained 30 Total hours operated 300
Days operated 25 Total kms. Covered 2,500
Days idle 5 Total tonnage carried 200
(4 tonne load per trip, return journey empty)
The following further information is made available:
1) Operating costs for the month:
Petrol ` 400; Oil ` 170; Grease ` 90; Wages to Driver ` 550; Wages to Khalasi ` 350
2) Maintenance Costs for the month:
Repairs ` 170; Overall ` 60; Tyres ` 150; Garage Charges ` 100
3) Fixed Cost for the month based on the estimated for the year.
Insurance ` 50; Licence, Tax etc. ` 80; Interest ` 40; Other Overheads ` 190
4) Capital Costs:
Cost of acquisition of ` 54,000.
Residual value at the end of 5 years life is ` 36,000.
Prepare a Cost Sheet and Performance Statement showing:
a) Cost per day maintained
b) Cost per day operated
c) Cost per kilometre
d) Cost per hour
e) Cost per commercial tonne kms.

Q.11. Fast roadways runs 10 buses between two suburban centres when are 25 kilometres apart. Seating
capacity of each bus is 30 passengers. The expenses for the month of November, 2007 were as
under:
Salaries of drivers and conductors ` 60,000
Salaries of mechanical staff 6,000
Diesel oil and lubricants 40,000
Taxes, insurance etc. 5,200
Repairs and maintenance 8,000
Depreciation 32,000
Seating capacity utilised was 60%.
All the buss ran 25 days of the month.
Each bus made four round trips daily.
a) Find out the cost per passenger kilometre and the cost per round trip per passenger.
b) What would have been the cost per round trip per passenger, if the seating capacity utilisation
were to go up to 80%?
c) What would have been the cost per round trip per passenger, if all the expenses (other than
depreciation) were to go up by 20% at a seating capacity utilisation of 80%?

Q.12. A manufacturing firm facing shortage of electric power supply from the State Electricity Board has set
up its own power generation plant for efficient running of its production units in the factory. The
following information has been taken from the records in connection with the generation of power for
a month:

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TOPIC : OPERATING COSTING

1) Number of units generated was 10,00,000 for the month of which 10% was utilised by the
generator department.
2) Consumption data of materials, etc. for the month:
a) Coal consumed 300 MTs @ ` 3,600 per MT
b) Oil consumed 4.5 MTs @ ` 40,000 per MT
c) Cost of water extraction and treatment for 6 lakh litres @ ` 1.25 per litre.
3) Steam boiler costs ` 200 lakhs with a residual value of ` 2 lakhs after a life of 10 years.
4) Salaries and wages per month.
a) For staff of generating plant:
1. 100 skills workers @ ` 3,000 p.m.
2. 150 helpers @ 1,500 p.m.
b) For staff of boiler house:
1. 60 category A workers @ ` 1,500 p.m.
2. 100 category B workers @ ` 1,000 p.m.
5) Cost of generating plant: ` 36 lakhs with no residual value. Depreciation @ 105 on straight line
basis is to be charged.
6) Repairs and maintenance of generating plant and boiler ` 50,000 p.m.
7) Share of administration charges ` 40,000 p.m.
8) Sales value of ash disposed of ` 15,000 p.m.
Calculate the per unit cost of electricity generating using a cost sheet.

Q.13. A transport company has a fleet of three trucks of 10 tonnes capacity each plying in different
directors for transport of customers’ goods. The trucks run loaded with goods and return empty. The
distance travelled, number of trips made and the load carried per day by each truck are as under:
Truck No. One way Distance No. of trips per day Load carried per
Km. trip/day tonnes
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:
Maintenance Cost
Year Total distance travelled
`
1 1,60,200 46,050
2 1,56,700 45,175
The following are the details of expenses for the year ended review:
Diesel ` 10 per litre. Each litre gives 4 km per litre of diesel on an average
Drivers’ Salary ` 2,000 per month
Licence and Taxes ` 5,000 per annum per truck
Insurance ` 5,000 per annum for all the three vehicles
Purchase price per ` 3,00,000. Life 10 years. Scrap value at the end of life is Rs. 10,000
truck
Oil and Sundries ` 24 per 100 km run
General Overhead ` 11,084 per annum
The vehicles operate 24 days per months on an average.
Required:
1) Prepare an Annual Cost Statement covering the fleet of three vehicles.
2) Calculate the cost per km run.
3) Determine the fright rate per tonne km. to yield a profit of 10% on freight.

Q.14. A chemical factory runs its boiler on furnace oil obtained from Indian Oil and Bharat Petroleum, whose
depots are situated at a distance of 12 and 8 miles from the factory size. Transportation of furnace Oil

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is made by the Company’s own tank lorries of 5 tons capacity each. Onward rips are made only on full
load and the lorries return empty. The filling in time takes an average 40 minutes for Indian Oil and
30 minutes for Bharat Petroleum. But the emptying time in the factory is only 40 minutes for all. From
the records available, it is seen that the average speed of the company’s lorries works out to 24 miles
per hour. The varying operating charges average 60 paise per mile covered and fixed charges give
and incidence of ` 7.50 per hour of operation. Calculate the cost per ton mile for each source.

Q.15. A transport service company is running five buses between two towns which are 50 kms apart.
Seating capacity of each bus is 50 passengers. The following particulars were obtained from their
books for April, 2007:

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`
Wages of drivers, conductors and cleaners 24,000
Salaries of office staff 10,000
Diesel oil and other oil 35,000
Repairs and Maintenance 8,000
Taxation, Insurance etc. 16,000
Depreciation 26,000
Interest and Other Expenses 20,000
1,39,000
Actually, passengers carried were 75% of seating capacity. All buses ran on all days of the month.
Each bus made one round trip per day.
Find out the cost per passenger km.

Q.16. 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 railhead plots. A fleet of lorries of 5
tonne carrying capacity is used for the transport of mineral from the mines. Records reveal that the
lorries average a speed of 30 kms per hour, when running and regularly take 10 minutes to unload at
the railhead. At mine ‘A’ loading time average 30 minutes per load while at mine ‘B’ loading time
average 20 minutes per load. Drivers’ wages, depreciation, insurance and taxes are found to cost ` 9
per hour operated. Fuel, oil, tyres, repairs and maintenance cost ` 1.20 per km. Draw up a statement,
showing the cost per tonne kilometre of carrying mineral from each mine.

Q.17. New India Transport Corporation has been experiencing financial and operational problems faced with
spuailing rise in fuel prices, high cost of spares and also high wages. Reproduced below are the
operational expense worked out for the one year period ended 30 th Sept. 2007.
Total fleet of vehicles: 600 single deck buses
Average passengers occupying each trip : 50
Total for 36,000 km / bus p.a. (`)
Variable Expenses:
Fuel and Diesel Oil 60,000
Tyres, Tubes and Batteries 80,000
Lubricant 15,000
Spare parts accessories 24,000
Wages including bonus and fringe benefits 1,40,000
Fixed Expenses:
Road Tax 6,000
Insurance 7,500
Rent for garage / Night Parking 15,000
Maintenance garage establishment cost 8,000
Original Cost per bus 7,50,000
Administrative Expenses Total Per Annum (Rs.)
Establishment Cost (Including salaries and PF) 87,50,000
Staff Welfare Cost 3,65,000
Gratuity 3,75,000
Rates and Taxes 3,00,000
Travelling and Conveyance 1,90,000
Postage and Telephone 1,30,000
Stationery 1,80,000
Audit Fees 75,000
Legal Expenses 95,000
Electricity 3,60,000
Interest and Bank Charges 8,30,000

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Miscellaneous 1,70,000
The aggregate of administrative overhead is to be absorbed in the operating cost on the basis of
available number of buses in the operation (assuming average breakdown @ 12.5%). Depreciation on
buses is computed @ 20% on Straight Line Method.
Based on the above information, you are required to advise management on the fare structure
assuming cost plus 15% margin for the following stages of travel (rounded off to nearest 50 paise):
1st Stage of Travel 2 km
2nd Stage of Travel 5 km
3rd Stage of Travel 10 km
4th Stage of Travel 15 km
Assume that the fare is charged in proportion to kilometre travelled.

Q.18. The Holiday Hotel has 40 bedroom with a maximum occupancy of 490 sleeper nights per week.
Average occupancy is 60% throughout the year. Meals provided to guests have been costed and the
average food cost per person per day is as follows:
Breakfast ` 3.60
Lunch 11.00
Dinner 13.40
Direct wages and staff meals per week are as under:
Restaurant and Kitchen 3,430
House Keeping 1,952
General 1,760
Direct expenses per annum are ` 45,760 for house keeping and ` 52,000 for the restaurant. Indirect
expenses amount to ` 3,41,120, which should eb apportioned on the basis of floor area. The floor
areas are:
Bed Rooms 3,600 sq. metres
Restaurant 1,200 sq. metres
Service Area 600 sq. metres
A net profit of 10% each must be made on the restaurant taking and accommodation takings.
You are required to calculate what inclusive terms per person should be charged per day. Show the
split between meals and accommodation charges.

Q.19. EPS is a Public School having 25 buses each playing in different directions for the transport of its
school students. In view of large number of students availing of the bus service, the buses work two
shifts daily both in the morning and in the afternoon. The buses are garaged in the school. The
workload of the students has been so arranged that in the morning, the first trip picks up senior
students and the second trip plying an hour later picks up junior students. Similarly, in the afternoon,
the first trip takes the junior students and an hour later the second trip takes the senior students
home.
The distance travelled by each bus, one way is 16 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 2006-2007 are as under:
Driver’s salary – payable for all the 12 ` 5,000 per month per driver months.
Cleaner’s salary payable for all the 12 ` 3,000 per month per cleaner months (one cleaner has been
employed for every five buses)
Licence Fees, Taxes etc. ` 2,300 per bus per annum
Insurance Premium ` 15,600 per bus per annum
Repairs and maintenance ` 16,400 per bus per annum
Purchase Price of the bus ` 16,50,000 each
Life of the bus 16 years
Scrap Value ` 1,50,000
Diesel Cost ` 18,50 per litre

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Each bus given 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.
The school follows differential bus fees based on distance travelled as under:

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Students picked up and dropped within Bus fee Percentage of students

the range of distance from the school availing this facility
4 kms 25% of Full 15%
8 kms 50% of Full 30%
16 kms Full 55%
Ignore interest. Since the bus fees has to be based on average cost. You are required to:
1) Prepare a statement showing the expenses of operating a single bus and the fleet of 25 buses
for a year.
2) Work out average cost per student per month in respect of:
a) Students coming from the distance of upto 4 kms form the school.
b) Students coming from the distance of upto 8 kms from the school and
c) Students coming from a distance of upto 16 kms from the school.

Q.20. Shankar has been promised a contract to run a tourist car on 1 20 km. long route for the chief
executive of a multinational firm. He buys a car costing ` 1,50,000. The annual cost of insurance and
taxes are ` 4,500 and ` 900 respectively. He has to pay ` 500 per month for a garage where he keeps
the car when it is not in use. The annual repair costs are estimated at ` 4,000. The cat is estimated to
have a life of 10 years, at the end of which the scrap value is likely to be ` 50,000.
He hires a driver who is to be paid ` 300 per month plus 10% of the takings as commission. Other
incidental expenses are estimated at ` 200 per month.
Petrol and Oil will cost ` 100 per 100 kms. The car will make 4 round trips each day. Assuming that a
profit of 15% on takings is desired and that the car will be on the road for 25 days on an average per
month, what should be charge per round trip?

Q.21. Union Transport Company supplies the following details in respect of a truck of 5 tonne capacity.
Cost of Truck ` 90,000
Estimates Life 10 years
Diesel, Oil, Grease ` 15 per trip each way
Repairs and Maintenance 500 per month
Driver’s Wages 500 per month
Cleaner’s Wages ` 250 per month
Insurance 4,800 per year
Tax 2,400 per year
General Supervision Charges 4,800 per year
The truck carries goods to and from the city covering a distance of 50 kms. Each way.
On outwards trip is available to the extent of full capacity and on return 20% of capacity.
Assuming that the ruck runs on an average 25 days a month work out.
a) Operating cost tonne km.
b) Rate per tonne per trip that the company should charge if a profit of 50% on freight is to be
earned.

Q.22. A company is considering three alternative proposals for conveyance of facilities for its personnel who
have to do considerable travelling, approximately 20,000 kilometers every year. The proposals are as
follows:
1) Purchase and maintain its own fleet of cars. The average cost of a car is ` 1,00,000.
2) Allow the executive use his own car and reimburse expenses @ ` 1.60 per kilometre and also
bear insurance costs.
3) Hires cars from an agency at Rs. 20,000 per year car. The company will have to bear costs of
petrol, taxes and tyres.
The following further details are available:
Petrol Re. 0.60 per km.
Repairs and Maintenance Re. 0.20 per km.
Tyre Re. 0.12 per km.

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Insurance ` 1,200 per car per annum.

Taxes ` 800 per car per annum.
Life of the car : 5 years with annual mileage of 20,000 kms.
Resale value: ` 20,000 at the end of the fifth year.
Work out the relative costs of three proposals and rank them.

Q.23. A lorry starts with a load of 20 tonnes of goods from station A. It unloads 8 tonnes at station B and
rest of goods at station C. it reaches back directly to station A after getting reloaded with 16 tonnes of
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.

Q.24. In order to develop tourism, ABCL airline has been given permit to operate three flights in a week
between X and Y cities (both side). The airline operates a single aircraft of 160 seats capacity. The
normal occupancy is estimated at 60% throughout the year of 52 weeks. The one way fare is ` 7,200.
The cost of operation of flights are:
Fuel Cost (Variable) ` 96,000 per flight
Food served on board on non-chargeable basis ` 125 per passenger
Commission 5% of fare applicable for all booking
Fixed Cost:
Aircraft lease ` 3,50,000 per flight
Landing Charges ` 72,000 per flight
Required:
1) Calculate the net operating income per flight.
2) The airline expects that its occupancy will increase to 108 passengers per flight if the fare is
reduced to Rs. 6,720. Advice whether this proposal should be implemented or not.

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