WORKSHOP COSTING IN S RLY

 WORKSHOP COSTING IN SOUTHERN RAILWAY

INTRODUCTION:

 

The role of Cost Accountants in Indian Railways has gained phenomenal prominence over the years. There has been emphasis for Costing analysis and control of activities by maintaining Cost records from early days. The process of change from mere cost accounting to aiding the Management in crucial decision making has been narrated stage-wise in this article. This article is intended to high light the ever-increasing role and potential of CMAs in Cost and Management Account practices.

SOME RAILWAY TERMINOLOGIES FOR QUICK REFERENCE:          

   RS: ROLLING STOCK

   POH: PERIODICAL OVERHAUL

   LOC: LABOUR ON COST

   MOC: MATERIAL ON COST

   DEMU: DIESEL ELECTRICAL MULTIPLE UNIT

   RSP: ROLLING STOCK PROGRAMME

   M&P: MACHINERY AND PLANT

   URC: UNIT REPAIR COST

   IMMS: INTEGRATED MATERIAL MANAGEMENT SYSTEM

   AIMS: ACCOUNTING INFORMATION MANAGEMENT SYSTEM

   PER: PERAMBUR

   KRCL: KONKAN RAILWAY CORPORATION LTD.

 

INCEPTION OF COSTING:

Until 1996, the scope of Costing in Indian Railways was restricted to production units and production activities carried out in workshops. Most workshops in Railways, engaged in carrying out Rolling stock maintenance activities, were manufacturing spares used for POH.   Table 1 explains below, the year-wise implementation of various types of costing in Workshop Accounts of Railways.

Table 1: Year-wise implementation of Costing in Indian Railways until 1992

COSTING SYSTEM	YEAR	PURPOSE
Job Costing	1962	Production activities in the workshop
Batch Costing	1965	Wagon production at Golden rock workshop
Process Costing	1992	Costing of Foundry & Sawmill shop activities- Now dispensed with consequent to closure of shops.

 

SCOPE OF THE ARTICLE

The core activity of Railways is transportation. However, the scope of this article covers the Cost and Management practices practiced in Workshops, the domain I am familiar with for the past two decades. To keep the Rolling Stock track worthy, day to day maintenance at running sheds, Intermediate Overhaul at Depots (Open line) and Periodical Overhaul (POH) at Workshops are being carried out at stipulated intervals.    

 

SYSTEM OF COSTING FOR ROLLING STOCK MAINTENANCE IN INDIAN RAILWAYS

      Figure 1: Costing system for arriving at URC of Coaches and Wagons

 

 

 

 

Figure 2: Costing system for arriving at URC of AC Locos

 

 

Table 2: Extension of Costing to Repair Activities

COSTING SYSTEM	YEAR	PURPOSE
Revised Costing System	1996-97	Contemplated by RITES for Electric Loco wise costing in Fox pro
Uniform Costing	2010-11	Developed “in-house” software application  in Oracle D-2k
DEMU Costing	2013-14	DEMU wise costing for POH/ special repairs in Oracle D-2k software application forms.
Coachwise Costing	2017-18	Coach wise type wise costing for POH and other repairs in Oracle - similar module.

 

 

REVISED COSTING SYSTEM:

 

This system of costing contemplated by RITES in Fox Pro was used for arriving at the POH cost incurred per loco. This has been implemented in respect of Electric Loco at Loco Workshop/PER and Diesel Loco at Golden rock workshop. This is the first system introduced to arrive at unit repair cost in respect of major repair activity whereas the rest of the systems were only for ascertaining production cost. The salient features are:

 

The cost incurred is divided into three categories viz. Group ‘A’, Group ‘B’ & Group ’C’:

1. Group’ A’ cost is usually the scheduled repair to be attended to in respect of all locos and hence the total cost incurred under this group is averaged among the locos turned out during that month
2. Each sub-activity is identified as a cost center and the cost will be collected cost center wise.
3. Group ‘B’ cost is the cost incurred on each loco based on the condition of the individual loco.
4. Additional expenditure on account of re-cabling and modifications carried out are collected and accounted under different cost centers.
5. Group ‘C’ cost reflects the high-value items replaced in respect of individual loco turned out during the month.
6. All expenditure booked cost center wise are apportioned to the locos turned out during the month based on standard Pre Determined ratio (based on equated output).
7.  The greatest advantage of this system is that the material cost is related to consumption per Loco.
8. The Inter Railway POH bills for Electric Locos are generated based on this RCS system.
9. This enables comparison of the unit activity cost of Electric locos repaired every month.
10. For comparison purpose, Group ‘A’ cost alone is taken as standard POH cost

 

However, this was not linked to financial Accounts and could not be continued in the outdated software.

UNIFORM COSTING SYSTEM:

 

The shortcomings noticed in the Revised Costing System were addressed and on the similar lines Uniform Costing System, a software application was developed in Oracle and D-2k forms “In-House” and implemented from June 2010 for POH of Electric Locomotives done at Perambur Locomotive Workshops. In this system, averaging Group A cost among all Locos turned out during the month has been dispensed with and specific consumption of materials to each Loco is billed. This system is linked to Financial Accounts.

 

EVOLUTION OF DEMU WISE COSTING:

 

Workshops in Railways are more keen on achieving their targeted outturn than the cost associated with it. A study on POH of one rake of DEMU owned by KRCL -(Diesel Power Car & 3 Trailer Coaches) was done. Outcome of the study revealed more than 50% under absorption of cost based on the average Costing system. This Financial implication was explained to the staff concerned at Loco workshop/PER and immediately costing on real-time basis was agreed to be implemented for DEMU activity. Workshop Accounts/PER Computer section developed an in-house software application for DEMU wise costing in Oracle and D-2k forms and is fully operational from 2013-14.

 COACH WISE COSTING SYSTEM

 

Similar module for Coach Wise Costing at Loco Workshop/PER has been implemented from January 2018. All diversified activities of Loco Workshop/PER have been brought under the network of Costing system.

BENEFITS OF ROLLING STOCK WISE COSTING  (POH REPAIR ACTIVITY)

●  Controls Overcharging of Revenue Head to reflect realistic Operating Ratio.

●  Eliminates undercharging other railways ensure effective clearance of WMS (Workshop Manufacture Suspense) balance.

●  Meaningful comparison of inter Railway cost of POH (URC).

●  Actual consumption of material and labour booking for each coach is billed.

●  Modification works undertaken during the course of POH- booked to respective RSP or other relevant Head.

●  Arrive at cost of Coach POH type wise

●  Stores and labour data can be imported to this module from IMMS/AIMS.

●  Each section is considered as a cost center for the collection of expenditure.

 

   PERIODICAL SPECIAL STUDIES

The following studies were made and reported in the last few years:

●  The Rolling Stock of Railways viz. Coaches; Wagons and Locomotives are due for POH at Scheduled period of 18 months, 54 months and 72 months respectively. POH given before the prescribed due dates are termed as premature POH.

●  The impact of premature POH of wagons and other Rolling stock were studied and reported to Mechanical Department. This has now resulted in drastic reduction in the arising of premature POH.

●  A detailed report on under-utilization of High-Value Machines was submitted highlighting the probable loss to railways. This data will be useful for planning M&P procurement in ensuing years.

●  An outsourcing proposal to rebuild Wagons was averted. The surplus manpower availability executing the work in the workshop was proved and has resulted in enormous savings to Railways.

●  Benefits on the introduction of new group incentive scheme by replacing the old scheme introduced in 1962 highlighted probable recurring savings and benefits to the organization.

●  Life Cycle Cost of few high-value machines was worked out and submitted to Board at Board’s instance under thematic study.

●  Individual study on Manpower requirement Vs availability for each activity/ shop done at various stages.

●  A detailed study was conducted on wide variation in URC of common POH activities among various workshops of Southern Railway.

●  This lead to some standardization of man-hours for scheduled POH in 3 Mechanical workshops of Southern Railway. 

●  Coordinated for bringing out revised Code (Operational guidelines) for Mechanical Department.

 

Of late, fresh outsourcing proposals are also routed through CMA to assess the exact manpower requirement Vs availability in pre and Post outsourcing periods.

 

The above studies imply the switchover of the role of Cost Accountant in Railways from mere Cost accounting to Management Accounting in line with the change of name of our Institute.

 

The role of CMA in Railways is to highlight and guide the top Management to take right decisions at right time on the following issues.

 

●  Identify the areas requiring better utilization of available resources.

●  Whether to continue “in-house” or outsource old or new activities.

●  If outsourcing is preferred, what quantum and when to outsource.

●  Alternate use of spare available resources.

●  Identify areas of avoidable expenditure and monitor their non recurrence.

●  Ensure correct allocation and apportionment of expenditure to various activities.

●  Suggest ways and means in pruning  down overhead expenditure

●  Assess the actual cost of each activity carried out.

●  Aid in effective inventory control to avoid locking up of funds.

●  Suggestions to augment railway earnings from traffic and other avenues.

●  Assist in implementation of ERP in future.

 

CONCLUSION:

Every one will appreciate that Indian Railways is a huge Capital Intensive Organisation

involving large amounts of Operational Outlay.  The need for achieving Excellence in Managing Costs in such an Organisation will be apparent.  The Scope for Contribution by Cost Management Professionals here is immense in areas like Capacity Planning, Resoure  allocation and utilisation, Investment Decisions,  Measurement of Operational efficiency, Outsourcing decisions, Waste elimination, Cost Conscious Shop Floor Practices, Cost control iniatives etc.,

Smt Aruna Mohan B Com FICWA 

Former Cost Accountant at

 O/o FA&CAO/S&W/PER SRLY