Traffic Costing - Concepts used in Traffic Costing

CONCEPTS USED IN TRAFFIC COSTING:

Fixed cost:  non variable cost, indirect cost or over heads – remain constant with a change in volume of traffic over a period – include establishment charges, interest depreciation and expenses on maintenance of P Way

Variable cost: marginal cost, incremental cost or differential cost – increase / decrease in direct proportion to changes in the volume of traffic – include lubricants, wages of running staff

Fully distributed cost: represent the total expenditure by railways - include working expenses, interest and depreciation on capital

Common cost: joint cost – due to non –m homogeneity of product mix same assets are used for providing passenger and goods services – expenses incurred jointly constitute common costs – allocated on the basis of certain ratios

Consignor’s cost: incurred by consignor – includes packing charges, charges for loading goods in to trucks, transportation from consignor’s warehouse to the rail head, unloading and loading in to wagons

Consignee’s cost: expenditure in taking delivery of consignment at destination station – cost of transport from destination station to consignee’s warehouse – includes unloading from wagons, loading in to trucks, transportation from rail head to warehouse

Inventory cost: imputed costs – interest charges on capital values of goods locked up during the period of transit

Inventory cost per tonne = V x r    t    

                                                      365      

  V - Value per tonne of goods x annual rate of interest

  t  -  number of days in transit from consignor’s warehouse to that of consignee’s. Delay in transit puts the customer to lose because inventory will go up. Railways take longer time therefore road is preferred though the freight is lower

Trader’s cost: total expenses incurred by trader for this movement of goods by particular mode of transport. Includes consignor’s cost, consignee’s cost, inventory cost, and freight Ultimate cost when it reaches the market

Operator’s cost:  expenses incurred by transport operator in providing the transport services. Includes requisition, maintenance, operation, improvement, replacement of transport facilities, compensation for damages, interest on borrowed money, dividend on capital

Economic Cost: includes cost of transport to the nation in terms of material and labor – excludes elements of taxes both central and State.