Contents

Contents

Executive Summery ------------------------------------------------------------------------------------- 01-14

Chapter 1 :

Approach of PCS in Indian Railways

1.1 Accounting Reforms and need for upgradation of Costing System --------------------- 15 1.2 Global Scenario of Railway Traffic Costing --------------------------------------------------- 16 1.3 Task of Upgradation of Costing System in Indian Railway -------------------------------- 18 1.4 Performance Costing System and Target Outcome ---------------------------------------- 19 1.5 Prime Considerations for Performance Costing System ( PCS) ------------------------- 19 1.6 Approach of Performance Costing System --------------------------------------------------- 20

1.6.1 Financial Accounting System --------------------------------------------------------- 20 1.6.2 Cost Data ---------------------------------------------------------------------------------- 20 1.6.3 Processing Frequency ----------------------------------------------------------------- 21 1.6.4 Upgradation of the System ------------------------------------------------------------ 21 1.7 Cost Centre Code (ACC code) ------------------------------------------------------------------- 21 1.7.1 Importance of ACC ---------------------------------------------------------------------- 21 1.7.2 Structure of ACC ------------------------------------------------------------------------- 22 1.7.3 Codification of ACC --------------------------------------------------------------------- 22 1.7.4 Nature of Activity Centers ------------------------------------------------------------- 23 1.7.5 ACC code & System Integration ----------------------------------------------------- 24 1.8 Activities and Cost Data Compilation ------------------------------------------------------------ 24 1.8.1 Activities in Divisions/Workshop & Zone ------------------------------------------- 24 1.8.2 Extraction of Cost Data ----------------------------------------------------------------- 24 1.8.3 Processing Sequence ------------------------------------------------------------------ 25 1.9 Line of Business & Line of Service in Indian Railway ---------------------------------------- 25 1.9.1 Scientific Segregation of cost --------------------------------------------------------- 25 1.9.2 Gauge wise segregation of cost ------------------------------------------------------ 25 1.9.3 LOB & LOS design ---------------------------------------------------------------------- 26 1.9.4 Formation of LOS based on commodity for Goods service ------------------- 27 1.10 Cost Driver for Cost Segregation ------------------------------------------------------------------ 29 1.10.1 Joint cost and cost distribution ------------------------------------------------------- 29 1.10.2 Cost Driver ? Performance Index ---------------------------------------------------- 30 1.10.3 Cost driver through IT Integration ---------------------------------------------------- 30 1.10.4 The Nature of some cost drivers ----------------------------------------------------- 30

1.11 Marginal Costing Techniques and profit planning --------------------------------------------- 31 1.11.1 Variable, Semi-variable and Fixed Cost -------------------------------------------- 31 1.11.2 Marginal Costing Technique ---------------------------------------------------------- 31 1.11.3 Support to Management Decision Making ----------------------------------------- 32

1.12 Distribution of Overhead Expenses --------------------------------------------------------------- 33 1.12.1 Overhead Distribution Approach ----------------------------------------------------- 33 1.12.2 Types of overheads --------------------------------------------------------------------- 34 1.12.3 Basis of apportionment of General overheads ----------------------------------- 34 1.12.4 Apportionment of pension fund ------------------------------------------------------- 37 1.12.5 Central Overheads ---------------------------------------------------------------------- 38

1.13 Depreciation Accounting ---------------------------------------------------------------------------- 38 1.13.1 Assets Register Maintenance -------------------------------------------------------- 38 1.13.2 Depreciation ? an Integral Cost Component -------------------------------------- 38 1.13.3 Depreciation of assets at different Accounting Units --------------------------- 39 1.13.4 Classification of Assets ---------------------------------------------------------------- 39 1.13.5 Suggestion for better Classification of Assets ------------------------------------ 41

1.14 Treatment of some special items ------------------------------------------------------------------ 41 1.14.1 Freight Charges of Railway Material ------------------------------------------------ 41 1.14.2 Credit for released materials ---------------------------------------------------------- 42 1.14.3 IRFC Lease Charges ------------------------------------------------------------------- 42

1.15 Grouping of ACCs under different Functional Cost Components ------------------------- 42 1.16 Treatment of some Activity Centre Costs and their distribution --------------------------- 43

1.16.1 Passenger Services -------------------------------------------------------------------- 43 1.16.2 Track Maintenance ---------------------------------------------------------------------- 43 1.16.3 Works Department Cost --------------------------------------------------------------- 44 1.16.4 Repair & Maintenance of Loco ------------------------------------------------------- 44 1.16.5 Repair & Maintenance of Coaches -------------------------------------------------- 45 1.16.6 Diesel Fuel Cost ------------------------------------------------------------------------- 45 1.16.7 Crew Salary Cost ------------------------------------------------------------------------ 46 1.16.8 TTE Cost ---------------------------------------------------------------------------------- 47

Chapter ? 2 :

Performance Costing System ? Processing

2.1 Source of Activity Cost Centre (ACC) Cost Transaction ------------------------------------- 49 2.2 Creation of monthly ACC Transaction Cost File ---------------------------------------------- 49 2.3 Activity Cost Centre Master File ------------------------------------------------------------------- 50 2.4 Activity Master File Updation ----------------------------------------------------------------------- 51

2.5 Cost Driver File Creation ---------------------------------------------------------------------------- 51 2.6 Supervision and Functional Overhead Distribution ------------------------------------------- 53 2.7 Process of derivation of Cost Drivers ------------------------------------------------------------- 54 2.8 ACC Cost Distribution to LOBs -------------------------------------------------------------------- 56 2.9 General Overhead Distribution -------------------------------------------------------------------- 57 2.10 Creation of Division LOB Cost File ---------------------------------------------------------------- 57 2.11 Functional Cost Component File Creation ------------------------------------------------------ 58 2.12 Depreciation Distribution ---------------------------------------------------------------------------- 58 2.13 Divisional Cost Statement -------------------------------------------------------------------------- 59 2.14 Workshop ACC ? LOB File -------------------------------------------------------------------------- 60 2.15 Zone ACC ? LOB File -------------------------------------------------------------------------------- 60 2.16 Zonal CCD ? LOB File ------------------------------------------------------------------------------- 60 2.17 Zonal Cost Statement -------------------------------------------------------------------------------- 61 2.18 Process Flow Chart ----------------------------------------------------------------------------------- 62 2.19 Train Operation Cost from Zonal Component Cost File ------------------------------------- 64

2.19.1 Passenger Services -------------------------------------------------------------------- 64 2.19.2 Parcel, Luggage & Postal Service --------------------------------------------------- 64 2.19.3 Catering ------------------------------------------------------------------------------------ 64 2.19.4 Goods Terminal Service --------------------------------------------------------------- 64 2.19.5 Goods Marshalling Service ----------------------------------------------------------- 65 2.19.6 Goods Transshipment Service ------------------------------------------------------- 65 2.19.7 Goods Repacking Service ------------------------------------------------------------- 65 2.19.8 Yard Operation --------------------------------------------------------------------------- 65 2.19.9 Coaching & Wagon Repair ------------------------------------------------------------ 66 2.19.10 Diesel Loco ------------------------------------------------------------------------------- 66 2.19.11 Electric Loco including fuel & OHE Maintenance -------------------------------- 67 2.19.12 EMU/MEMU operating Expenses --------------------------------------------------- 68 2.19.13 EMU/MEMU Repair Expenses ------------------------------------------------------- 68 2.19.14 Track Maintenance ---------------------------------------------------------------------- 68 2.19.15 Repair & Maintenance other than Track ------------------------------------------- 69 2.19.16 Bridge & Tunnel Maintenance -------------------------------------------------------- 69 2.19.17 Train operation & passing ------------------------------------------------------------- 69 2.19.18 Signalling & Telecommunication ----------------------------------------------------- 70

Chapter ? 3 :

PCS based MIS for Strategic Decision Making

3.1 Utility of Zonal Cost Statement --------------------------------------------------------------------- 80 3.2 LOB Wise profit margin ------------------------------------------------------------------------------ 80

3.3 Financial Budget ? LOB wise ----------------------------------------------------------------------- 81 3.4 LOS wise profit margin for a LOB ----------------------------------------------------------------- 81 3.5 Profitability of a new Project ------------------------------------------------------------------------ 82 3.6 Performance of Freight Services ------------------------------------------------------------------ 82 3.7 Tariff Fixation or Assessment of Profitability of a Train (at Existing tariff.) -------------- 83 3.8 Marginal Costing Technique to evaluate a business proposal ----------------------------- 84 3.9 Determination of cost of accidents ---------------------------------------------------------------- 85 3.10 Cost of additional stoppage of a passenger train --------------------------------------------- 85 3.11 Divisional Activity Center wise Cost Report ----------------------------------------------------- 86 3.12 Activity Performance Date from Activity Cost Drivers ---------------------------------------- 86 3.13 Determination of Access charge for an assets ------------------------------------------------ 87 3.14 Cost Benefit Analysis of Outsourcing of an Activity ------------------------------------------- 87

Chapter ? 4 :

Performance Costing System ? Implementation Issues

4.1 Change Management -------------------------------------------------------------------------------- 89 4.2 Skill Level of manpower ----------------------------------------------------------------------------- 90 4.3 Adaptability --------------------------------------------------------------------------------------------- 90 4.4 Training Requirement -------------------------------------------------------------------------------- 90 4.5 Management Support -------------------------------------------------------------------------------- 91 4.6 Quality of the System -------------------------------------------------------------------------------- 91 4.7 Development of Costing Cell ----------------------------------------------------------------------- 92 4.8 Record Management System ---------------------------------------------------------------------- 92 4.9 Objective of Test Run -------------------------------------------------------------------------------- 93

Annexures

Annexure

Annexure I Annexure-IIA Annexure-IIB Annexure-IIC Annexure-III Annexure IV-A Annexure IV-B Annexure IV-C Annexure IV-D Annexure V Annexure VI

Particulars

Mapping chart for conversion from PU to Cost items LOB Wise - Functional Component Costs LOS Wise - Functional Component Costs: BG (PS&ME) LOS Wise - Functional Component Costs: BG (OS), MG, NG Proposal for Introduction of New Heads Detail of Activities under Functional Cost Components Functional Cost Components: Exclusively for Goods Services Functional Cost Components: Exclusively for EMU/MEMU Services List of General Overheads Cost of a Trip of Rajdhani Train Activity Input Sheet

ABM ACC

AIMS

BG CC CD CMS CPI EC EM EMU ETKM FAR FCC FOIS GS GTKM ICMS

ICWAI-MARF I-MMIS IOH IPAS IRFC IT ITKM LMS LOB LOS ME MG NG OS P/E PCS POH PRS PS PU PWI RAB RDI

ACCRONYMS Activity Based Management Activity Cost Centre

Accounting Information Management System

Broad Gauge Chair Car Cost Driver Crew Management System Consumer Price Index Executive Class Electric Multiple Unit & MEMU services Electric Multiple Unit Equated Track Kilometer Fixed Asset Register Functional Cost Components Freight Operations Information System Goods Train Services Gross Tonne Kilometre Integrated Coaching Management System

ICWAI ? Management Accounting Research Foundation Integrated Material Management Information System Intermediate Over Hauling Integrated Payroll and Accounting System Indian Railway Finance Corporation Limited Information Technology Integrated Track Kilometer Locomotive Management System Lines of Business Lines of Service Mail/Express Train Services Meter Gauge Narrow Gauge Passenger Train services including DMU Plant & Equipment Performance Costing System Periodical Over Hauling Passenger Reservation System Premium Train Services Primary Unit Permanent Way Inspector Regulatory Asset Base Railway Diesel Installation

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