Indian Railway Codes and Manuals-Mechanical code (Rolling stock )-Chapter- 6 (VI)

 

Chapter 6

Costing in Workshops

601. Introduction Costing is the process of classifying, recording and ensuring appropriate allocation of expenditure so as to accurately arrive at the cost of the final product or service of a workshop or production unit. Costing of each and every activity will help the workshop to measure its efficiency and improve it. A proper costing system will inculcate the habit of working out viability of a product or service before taking decisions on producing it or buying it.

602. Costing in Workshops of Indian Railways The costing systems or Costing manual in any production unit if already in vogue at the time of introduction of this code , shall continue to remain effective unless otherwise decided to be replaced by the costing system suggested as per Rolling stock Code with the approval of General manager on recommendations of PCME and concurred by PFA. The basic purpose of costing in Railway workshops is to arrive at the Total Cost of Ownership of each item of rolling stock so that replacement decisions can be made on a rational and scientific basis. This process can be more effective only after the introduction of ERP (Enterprise Resource Planning) systems in all the workshops of IR. In order to enable introduction of ERP, Railway Board as well as Zonal Railways must digitise on a data base details of all assets right from the time of proposal for acquisition till their condemnation. Details of every expenditure on maintaining each asset of the unit must be available on the system. Till ERP is fully introduced in all the railways, cost of repair of rolling stock will be worked out as described in the following paragraphs.

603. The system of costing will differ depending on the nature of work carried out in workshops. The systems to be adopted in Railway workshops are Process Costing System (for Foundry Accounts & similar activities), Job Costing System, (For Shop manufactured items), Batch Costing System (for Rolling stock production) and Revised Costing system (for arriving at Unit Repair Cost (URC) of Rolling stock given POH). Process Costing system and Batch Costing system are fully explained in chapter 3 and are applicable to workshops engaged in production of rolling stock and also undertaking Foundry activities. Job Costing system and Revised Costing System are explained in the following paragraphs.

604. Job Costing System This system will be followed by all the workshops engaged in manufacture of spare parts required during POH of Rolling Stock in Indian Railways. This system is used to arrive at unit rate of manufacture in respect of shop-manufactured items. The technique of Standard Costing is applied in this system and the expenditures are collected element wise under the respective work order and the exact cost per unit is arrived at. The actual cost so arrived at is compared with the standard already set for material and labour. However, these items are manufactured for internal consumption only. Under this system, the expenditure for each specified item of manufacture is collected under one Work Order and on completion of ordered quantity the Final Completion Advice (FCA) is sent to Costing section for generation of Cost sheet and arriving at unit rate of manufacture item wise.

605. Features of Job Costing System a. For each item of manufacture there is Allowed time against each process of work. b. Standard quantity of raw material to be drawn with the specification is also given. c. The unit cost of manufacture is arrived from cost sheet for the particular work order wherein, all elements of cost are charged to that work order. d. Total cost divided by the quantity completed for that work order will give the unit cost of item manufactured. e. The standard fixed helps comparison of unit cost with other shops or with trade cost. f. The jigs. fixtures or special tools required should be decided on. Particulars of jigs and tools required should be passed to the Jig and Tool Drawing Office, who should prepare the necessary drawings. The layout of operations together with particulars of jigs to be used and lists of material required should be passed on to the Progress Office.

606. Planning When a new standard part is to be manufactured for stock purposes, the drawing as finally approved should be sent to the Workshop Production Office where the following procedure should be adopted by the Planner and Rate Fixer, working under the supervision of the Production Engineer. a. The number of parts to be manufactured should be decided. b. The drawing should be examined to see if there are any alterations required to design, in order to reduce the cost of production c. When parts are made from castings, it should be decided whether the moulds are to be made on a Moulding Machine or by hand. d. The Section and length of material, required for making one part should be recorded (This applies to parts not made from castings). e. The details of various operations and types of machines, on which the parts are to be made, should be set out, estimated times being fixed for each operation on the best data either available or obtained for the purpose. f. The jigs. fixtures or special tools required should be decided on. Particulars of jigs and tools required should be passed to the Jig and Tool Drawing Office, who should prepare the necessary drawings. The layout of operations together with particulars of jigs to be used and lists of material required should be passed on to the Progress Office.

607. The Progress Office should then issue pattern requisition and prepare process sheets described in para 608.

608. Process Sheets Process Sheet in Form No. M.0608 is compiled by the Planner who first enters the usual information in the different cages on the heading portion. The planner then details the operations required to manufacture components/assembly in their sequence. Against each operation, in the appropriate columns, he enters the operation number, the Shop number and the Section in which the operation is to be done and the code of the machine on which the operation will be performed. a. The Operation is briefly but precisely stated. The Process Sheet is checked by the in charge, Processing Section and initialed in token of his approval. It is, thereafter forwarded to the Rate Fixing Section. The Rate Fixer fills in the necessary information regarding PA and AT( Preparatory Allowance and Allowed Time) in the appropriate columns. b. Process Sheet is the basic record. It is filed in the Planning Office. Whenever any change in the process is decided, it is noted on the back of the relevant Process Sheet indicating the authority and the reasons for the change. Each alteration is initialed by the incharge, Processing Section in token of its record. All alterations to processes are advised to the Rate Fixing Section. The process sheet and other production documents will be printed through the computer. Form M 608 PROCESS SHEET Control Work order No Set Nos. DATE REQD. LATEST STARTING DATE Sub-Work Order Name of Part NQ/Set Batch No. Component of Drawing No. Priority MATL. SPECN: MATERIAL SIZE & LENGTH/PIECE Route Delivery to Kgs. Dept. M/C Class Operation Time No. off.

609. Revision of Control Work Order Series The series of the control work orders should be revised after every half year and all cases of sub-work orders remaining incomplete for more than 3 months after the old series has been revised should be listed by the job costing section and reported to the Works Manager for taking special steps for their completion.

610. Recoupment of Stock All orders for newly designed parts, that have not previously been stocked, should emanate from the Progress Office. When a part becomes a stock, item, the Officerin-charge of the Workshop Stores should be made responsible for arranging for recoupment as soon as the stock reaches the fixed minimum. A computerized requisition for such recoupment should be placed by the Stores Depot in duplicate in an appropriate form.

611. Issue of Production Documents Job Card (Normal Production Work): The time worked by workmen (other than squads) on individual operations is booked on this card. Computerized Job cards are printed by the Production Control separately for each operation indicated on the Route Card and sent direct to the shop concerned simultaneously when the Route Card and other forms are handed over to the Stage Progress Section. When a job is taken up the operator punches ‘ON’ (the time of commencement) the job card with the aid of the Time Clock installed beside the Time Booth. Similarly, when the job is finished the operation punches ‘OFF’ time on the Job Card. The time taken by the operator for each date, the operation remained in progress, is recorded by the Time Booth Clerk in the columns provided for this purpose on the reverse o the Job Card. On completion of the operation, the Job Card is passed on to the shop Inspector for certifying the quantity passed. On receipt back in the Time Booth the Card is passed on to the Incentive Bonus Section of the Workshop Accounts Office. Job Card (Replacement Work): This document is exactly the same as the form the Job Card (Normal Production Work) except that it’s use is confined to the “replacement” work and is in pink colour for easy identification. Job Card for squad work.—This card will be used for each of the workmen (including the leading hand) handling the operation covered by the squad summary card. Sufficient number of such blank Cards will be supplied to the shop in charge. At the time of starting the job, the supervisor will enter the Ticket No. of the leading hand on the squad summary card and hand it over to the leading hand along with a separate job card for him and for each man in the gang, duly filled in, in respect of Ticket No. category, work order number and operation No. and signed by the supervisors concerned. The leading hand will punch 'on' the squad summary card and the job-cards of the men in the gang and hand over all the punched on cards to the Time Booth. Squad Summary Card.—Squad summary card will be used for consolidating the labour hours of men employed on squad work. One such card is supplied for squad work of each operation of the work order, to the shop supervisor .This card is punched 'on' by the leading hand at the time of starting the job and punched 'off' by him again on its completion. Proceeding Time Card.—In respect of jobs are which remain in complete during the month, the time put in during the month is transcribed by the Time-clerk in the "Proceeding Time Cards" showing, Ticket No. work order No. and the hourly rate for costing. Such cards are sent to the costing section. A note of the proceeding time is also kept in the original job card against the space provided for this purpose. The proceeding time cards also given a distinct serial number each month by each time booth. The arrangement of Proceeding Time Cards will however, not be required to be followed where compilation of workshop Manufacture Suspense Account has not been mechanized as the accounts will continue to be compiled under the head - and hand method by making use of the Time sheets/tally sheets. Material Requisition: This form serves as an authority for the Shop Superintendent to draw material as specified therein for manufacture of components etc. against a specific work order, etc. This form is printed through computer shows all particulars as shown on the top portion of the Route Card. Necessary cages are provided on the reverse of the form for the particulars and the value of the material issued. The number of copies of Material Requisition to be prepared should be settled in consultation with the PFA in accordance with the Stores code. Form M. 611A MATERIAL REQUISITION Control Work Order No. Quality On Order Date Required Requisition No. Shop Latest Starting Date Requisition Forwarded Date Signature Sub-Work Order Name of Part Material Issued Date Signature Component of Drawing No. Priority Material Received Date Signature Material Specification Material Size & Length/Piece Recorded Date Signature Route Delivery To Kgs Issue Note No. .................. Dated ................. P.L.No. ........................... Value Price Pro of Class of Store Qty. Demanded Qty Issued 27-1 RB/ND/90 Material Requisition (Replacement)-: This form is the same as that of the Material Requisition for production work except that its use is confined to replacement work duly authenticated by appropriate rejection advice. This form is issued in pink colour for easy identification. Form M 611B MATERIAL REQUISITION REPLACEMENT WORK Control Work Order No. Quality On Order Date Required Requisition No. Shop Latest Starting Date Requisition Forwarded Date Signature Sub-Work Order Name of Part Material Issued Date Signature Component of Drawing No. Priority Material Received Date Signature Material Specification Material Size & Length/Piece Recorded Date Signature Route Delivery To Kgs Class of Stores .......................... P.L. No. ............................... Kgs Rate Unit Value (Rs) Closing Balance Quantity Demanded ............................... Quantity Issued ...................................... Material Tag : This form is printed through computer and remains tagged with the material right from the time the raw material is drawn till the component/assembly is delivered to the Stores Department so as to identify the sub-work order to which it relates. Form M. 611C MATERIAL TAG Control Work Order No. Quality On Order Date Required THIS LABEL MUST STAY WITH WORK Sub-Work Order Name of Part Component of Drawing No. Priority Material Specification Material Size & Length/Piece Route Delivery To Kgs Receipt Note No. ........................... Dated .............................................. Value (Rs) Price Proof Class of Store Qty Ordered Qty Received Depot Closing Balance .................. Quantity .......................................... Date ................................................ Signature ........................................ Material Tag (Replacement Form): This form is same as of the material tag for ordinary production work except that its use is confined to replacement work. This form is issued in pink colour for easy identification. Form M. 611D MATERIAL TAG REPLACEMENT WORK Control Work Order No. Quality On Order Date Required Latest Starting Date Sub-Work Order Name of Part THIS LABEL MUST STAY WITH WORK Component of Drawing No. Priority Material Specification Material Size & Length/Piece Route Delivery To Kgs

612. Route Card The route card which shall be in Form M. 612 is the authority for the shops to undertake manufacture of the component/assembly for which it is issued. This is an exact replica of the Process Sheet (Form M. 608) with adequate space provided for the inspection staff to record the results of inspection or checking on completion of each operation. The Route Card is issued by the Production Control (through the Progress Office) to the Shop initiating manufacture and thereafter it accompanies the material till its delivery to Stores on completion of all operations. The Stores Depot acknowledges, on the Route Card, receipt of the component/assembly sent to the Depot from the Shops in the case of shop manufactured items. The Shop in charge thereafter passes on the Route Card to the Progress Office. The Progress Office sorts out the Route Cards by different Control work orders after scrutinising that necessary references of material requisitions and piecework Job Cards have been entered therein and forwards the Route Cards to the Job Costing Section of the Workshop Accounts Office. Normally, only one Route Card is issued to cover the number of components/ assembly on outer against a sub-work order. Form M 612 ROUTE CARD Control Work Order No. Quantity on order Date Reqd. Requisition No. Shop Latest starting date Requisition Forwarded Date Signature Sub-work order Name of part Material Issued Date Signature Component of Drawing No. Priority Material Received Date Signature Matle. Specn. Material size and length/piece Posted Date Signature Route Delivery to Kgs. Qty. produced Qty. Passed REJECTS Inspectors Signature Mat. Man. Dept. M/C Class Operation Time No. off. P ………………………………………. A ……………………………………………………………………. P ………………………………………………………………….. A ………………………………………………………………….. Note: Operating Times and Prices given are "for each" unless otherwise stated. Reverse of Form M. 612 Class of Stores P. L. No. Qty. Demanded Kgs. Rate Unit Value Closing Balance Qty. Issued

613. Work order System in Workshops The work order should be so designed to capture the related expenditure of a particular job and this eight digit Work order on sight should also convey the purpose/ details for which it is undertaken. At any given point of time the work order should depict the clear picture of expenditure booked and outturn achieved. This system has been elaborated in Chapter 7.

614. Any product or service undertaken needs to be financially viable, economically and socially workable. For this purpose the costs are basically bifurcated into Prime Costs (consisting of Direct labour and Direct material) and Overheads or On costs (consisting of Indirect labour and Indirect material). The proportion of each of these three basic elements of costs viz, Direct labour, Direct material and Overheads to the total cost of the product or service will highlight the essentiality of that element to the final product or service. This basic analysis will help the workshop identify the areas so as to exercise control over expenditure. Various Elements of costs and their accountal is discussed in the following paragraphs.

615. Prime Cost Direct labour and Direct material which are essential and directly allocable to the final product or service are known as Prime costs. Direct labor cost should include incentive bonus and overtime payment. While booking the cost of direct materials, consumables that are expensive or used in substantial quantities must be included.

616. Direct Labour Direct labour hours should be captured from the job cards or squad cards for the respective work order. In the Workshop General Register and Labour Sub ledger the Direct labour hours so captured may be multiplied by the Average Hourly Rate which is to be computed on monthly basis so as to reflect the labour payment of that particular month. Since the work shop payment data is ready immediately with technical advancement, same month’s data should be utilized for computation of Average Hourly Rate. The capturing of labour hours work order wise on day to day basis, arriving at the total hours on the date of closure of job cards should be directly captured by the computers. Write Back Order in respect of labour booking will notunder any circumstances be permitted. Such a system should be implementable after installation of ERP in workshops/PUs.

617. Direct Material/Stores Issue note is the basic record for drawal of stores. The stores drawal must be commensurate with the physical outturn ensuring minimum shop floor inventory. It is possible to indent for the combined quantity where material is common for more than one activity (eg.) Material may be common for POH of Passenger Coaching Vehicles and POH cum Corrosion of Passenger Coaching Vehicles and POH of Other Coaching Vehicles, POH of EMU/MEMU or even Wagon POH in the same workshop. However, at the time of preparation of issue note, Write Back Orders to the respective Head of allocation should also be prepared simultaneously to ensure correct booking to the respective work. The quantity drawn is multiplied by the Book Average Rate already available in the system P L number-wise in respect of Stock items to arrive at material cost in respect of Stocked items. In respect of Non Stock items the input is given by Workshop Accounts office consignee wise (shop wise) and the material cost is incorporated in the Workshop general register (WGR) for the respective Head of allocation. On any account WISE (Workshop Information System) should be linked to MMIS (Material management Information System) to clearly record the stores drawn by workshops. Until implementation of Rolling stock wise costing, the common material for coach and wagon POH can be allowed to be drawn against one work order. However, later the same may be written back to the respective work based on the material issued.

618. Accountal of Material cost for costing data The generation of costing data will be based on consumption of materials and the input regarding consumption of material (stock, Non stock as well as consumables that are expensive or used in substantial quantities) for type wise rolling Stock should be supplied by shop floor and the same is to be averaged amongst the number of rolling stock turned out in that particular type for Group A cost of material, and any specific material used for any individual rolling stock is to be booked to that rolling stock. Wherever the cost of high value consumables can be directly identified with the work should be allocated directly to that work.

619. Overheads/ on costs The expenditure required to be incurred for completion of a product or service but, which cannot be directly allocated to the product or service and can only be apportioned on some logical basis is known as overheads. In Railway workshops, On- costs may be classified in to Shop on cost (comprising of Labor and Material), General On cost (comprising of Labor and Material) and Administrative On costs. Expenditure for contractual activities/outsourced work, which are directly going into the manufacturer or final outcome of a product, should be directly added to that particular product.

620. Shop & General On Costs a. Shop On Cost: Shop On Cost includes all on cost incurred within an accounting unit, such as a shop or a department or a section. The following are examples of such On Cost: i. Wages, overtime etc. of workshop apprentices attached to particular shops, JEs, unskilled labour except when employed as direct labour tally men, store men, and of shop clerks Note: Expenditure on clerks who are working on the shop floor but are responsible for Time-Keeping and Time Booking functions under control of the Accounts department, will continue to be charged to final heads of account under the Rev. abstracts concerned. ii. Leave pay, idle time, sick hurt and holiday pay, travelling allowances and arrear pay, and pay allowed to men on volunteer duty or part-taking in sports. iii. Shop scrap (credit) i.e. scraps which cannot be allocated to jobs. iv. Stationery and forms used in shops. v. Defective and spoilt work, in the case of experimental work. vi. Power chargers, whether electric pneumatic, gas or hydraulic which can be directly allocated to shops. vii. Wages of operators of automatic machines, not otherwise allocated. viii. Wages, overtime etc. of men employed on mechanical transport in the shop. ix. Wages, overtime etc. of all general labour in shops including those employed on transport. x. Hammer driving in shops. xi. Small differences between muster rolls and time sheets (paragraph 0520). xii. Consumable stores for shop use, such as i.Oil for lubrication of machinery and shafting oil and waste for cleaning machines. ii.Sponges, emery and glass cloths, soap, pumice, acid, glue and chamois leather. xiii. Charges for coal and coke in the smithies. xiv. Lighting charges in shops. xv. Fine creditable to works. xvi. Suspension allowances. xvii. Wages etc. of shop messengers. xviii. Working expenses of crane and shunting engines, lorries, auto trucks, traversers etc. which can be charged to shop on cost. xix. Small tools for shop use. b. General on Cost: General On Cost denotes all On Costs other than Pro Forma on Cost/Administrative on Cost that is incurred in common with more than one shop or department within a workshop. General On Cost will include: i. Leave, sick, hurt and holiday pay paid to workshop employees whose wages are not charged to shops, such as the yard establishments. ii. Wages, overtime etc. of staff, such as the workshop apprentices, tool keepers, not attached shops. iii. Freight charges that cannot be directly allocated to jobs. iv. Electrical power, which it is not possible to allocate to shops. v. Hydraulic and pneumatic power and gas that cannot be allocated to shops. vi. Wages paid in lieu of notice to workshop staff not charged to shops. vii. Replacement of articles stolen or lost. viii. Expenditure on apprentices’ school and hostel (Net). ix. Working expenses of crane and shunting engines, lorries, autotrucks, traversers etc., provided for the use of the workshop when not chargeable to Shop on cost. x. Working expenses of central works pumping plant. xi. Experimental work, when not more appropriately charged directly to the job itself. xii. Water charges that cannot be allocated to shops. xiii. Wages, overtime etc. of general labour in yards and shunters. xiv. Sanitary arrangements in workshops. xv. Messengers’ wages, uniforms etc. when not allocable to shops. xvi. Consumable stores for general use not allocable to shops. xvii. Maintenance of mess rooms. xviii. Yard lighting. The above list is only illustrative and not exhaustive. Chief Workshop Manager of every workshop will arrange to issue in consultation with associated finance fresh work orders for on-cost required for their workshops and the same should be reviewed once in 2 years. These on-cost expenditures are to be charged to various works undertaken in the respective shop and general on cost are common to workshop as a whole. On costs are always expressed and levied as a percentage of Direct labour including incentive Bonus and overtime paid in that work order. Standing Work Orders for General On Cost: The expenditure chargeable to General On Cost, that is actually incurred, will be booked understanding work orders for such On Cost separately under labour and materials, the wages of workmen being booked as “General On Cost (labour)” and the remaining as “General On Cost (materials)”. The number of such work orders should be sufficient to yield at least the following analysis of such expenditure. a. Cost of operating general plant and equipment (labour and materials). b. Yard lighting (materials). c. Yard staff wages including wages of collies (labour). d. Leave, sick hurt, holiday and notice pay of men whose wages are not charged to shops, such as (3) above (labour). e. Wages, overtime & c. of apprentices not working in shops (labour) and the net expenditure on their school, hostel, & c. (materials.) f. Freight bills which cannot be conveniently allocated to specific work orders (materials). g. Cost of consumable stores for general use not allocable to shop oncost (materials). h. Other items of general Oncost (labour and materials). Standing Work Orders for Shop On cost: The expenditure on labour and materials of the nature of on cost actually incurred in individual shops should be collected under a sufficient number of standing work orders, separately under “labour” and “materials” as in the case of general on cost. The following work orders provide the minimum analysis considered essential: a. Wages, overtime, & c. of chargemen, mistries, unskilled labour except when employed as direct labour, tallymen, store men, shop clerks, messengers, belters, oilers and other such labour (labour). b. Leave pay, idle time, holiday pay, & c. (labour). c. Defective and spoilt work in the case of experimental works (labour and materials). d. Power and lighting including coal and coke (materials). e. Loose tools and hand machine tools (materials). f. Shop scrap, i.e. scrap which cannot be allocated to jobs (materials). g. Consumable stores, such as oil, waste, & c. (materials). h. Furniture and sundries (materials). i. Other items of shop Oncost (labour and materials).

621. Annual Budgeting for on costs is necessary since large payments to employees like Productivity Linked Bonus, DA Arrears etc. are paid once or twice a year but these on costs are to be recovered throughout the year. The on-cost budget should be prepared taking into account the probable outlay on indirect and direct expenditure during the ensuing financial year. As the actual on cost will be collected under On cost work order and the same will be recovered at predetermined rates on Direct labour including incentive and over time payment, effort must be made to recover the maximum possible amount.

622. Quarterly Review of on-costs A review of efficiency of overhead percentages should be made quarterly with reference to total actual expenditure incurred vis-à-vis that recovered at the overhead percentages. A comparison of these actual overheads with recoveries made through estimated percentages will reflect over/under charges for the month under different overheads. If these are found unduly large, the percentages are revised without waiting for the Annual On cost Budget so as to minimize the difference between the actual and the predetermined percentage. The Under / Over charges at the end of the year should be less than 5% so as to make On cost budget realistic and the same must be cleared through the final Heads before the end of the Financial Year. Senior scale/JA grade executive officer in charge of Production Control Organization should review the trend of on-cost budget every quarter, jointly with workshop Accounts Officer. The outcome of this review in the form of management summary shall bring to the knowledge of Chief Workshop Manager for the management review and ‘on-cost’ control exercise.

623. (a) Direct Labor, Direct material, Shop On cost and General On cost need to be charged to all types of works executed at workshop irrespective of their nature. Proforma on cost and other charges will be charged as a percentage of direct labour (including incentive & Over Time Payment) labour on cost to be charged only for works of Rebuilding/modification under RSP as well as works of repair/rebuilding/rehabilitation done for outsiders. Method of charging of various elements forming part of proforma on cost to be done based on an annual budgeting exercise as given below in a tabular form. Explanation on proformaoncost budgeting can be seen in chapter 8.Profit will also be charged for work done for outsiders, based on the prevailing instructions. In order to be competitive in works done for outsiders, the General Manager of a zonal Railway shall with the recommendation of PCME and concurrence of PFA have the power to reduce the quantum of Proforma on cost and or profit either wholly or in part in accordance with special instructions in vogue. It should be examined whether Railway gains any advantage, financial or otherwise, by the remission and the fact that the Railway did not actually incur any identifiable overhead charges should not by itself be treated as necessary and sufficient reason for foregoing the recovery of such oncost. The following table shows the details of recovery of costs. Table Sl.No . Cost elements Revenue works Rehab/Modfn under RSP Deposit work s for outsiders Export Pricing/Marginal Costing 1. Direct labour Yes Yes Yes 2. Direct Material Yes Yes Yes 3. Shop & Genl labour on cost Yes Yes Yes 4. Shop & Genl stores on cost Yes Yes Yes 5. Freight Nil Yes Yes 6. Storage & sup. Nil Nil Yes 7. Proformaoncost (PFOC) Yes (a) Sup. at higher level Nil Nil Yes (b) PF & Grat. Nil Yes Yes (c) Repairs & maint. Yes Yes (d) Interest Nil Nil Yes (e) Depreciation Yes Yes 8. Profit Nil Nil Yes 9. Contingencies Nil Yes Yes 10. Taxes Nil Nil Yes For manufacturing activities including rolling stock construction done under RSP/Capital/DRF for railways as well as for outsiders under Deposit by repair workshop, charging of overheads will be done in accordance with the relevant provisions in chapter 2 viz., ‘Production Units’. (b) Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution. The term marginal cost implies the additional cost involved in producing an extra unit of output, which can be reckoned by total variable cost assigned to one unit. It can be calculated as: Marginal Cost = Direct Material + Direct Labor + Direct Expenses + Variable Overheads (c) Classification into Fixed and Variable Cost: The Variable costs viz Direct Labour and Direct material cost have one to one relationship within level of outturn and will be accounted for as given in para 616 and 617. However most of the elements of Shop on Cost and General On cost described in para 620 are fixed in nature as far as work done for external non Railway Customers remains relatively small percentage of overall direct labour consumed. For example change on expenditure delta x on account of shed and yard lighting will not change whether or not work for outside party is undertaken or not unless it is so large that administration decides to introduce third shift . (d) Opportunity cost – The concept of opportunity cost is extremely important to understand since in several cases due to inflexible costing system in government which is many a time based on historic data and not real time, opportunities are lost which result in less intensive utilisation of workshop assets and consequent loss of revenue. Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. Hence when estimating cost of offering Rolling stock or services by conventional method as given in para 00623 of IRRSC. Opportunity cost should be calculated if there is substantial probability of business being negotiated in competitive environment which may be lost if right pricing is not done. Opportunity cost may be calculated in following manner – OC= FO-CO Where OC= Opportunity cost, FO- Return on Foregone option ( i.e costing at discounted price) , CO- Return on Chosen Option If chosen option of conventional costing gives nil probability of business then OC=FO As long as OC is positive, discounted price option is viable. If OC becomes zero or negative, conventional price option should be adhered to. (e) The current costing methodology as per para 0623(a) requires costing for Rolling stock supply and maintenance to be carried out for third Party after adding Prime ( Direct Labour+ Material) & Shop & General On-cost plus Proforma On cost & Profit .Some flexibility is provided with power to reduce Proforma On cost & Profit wholly or partly at the level of General Manager with the concurrence of FA&CAO. However in rapidly changing business environment where decisions have to be conveyed to Outside parties in matter of few days otherwise business would be lost, this methodology is too slow particularly as the priorities of General Managers in Open line are almost entirely focused on Freight and Passenger operations of Railways. While existing provisions on costing may be considered sufficient for regular Railway works. However the system suffers from the drawback that overheads are calculated once in a year and are not reflective of current values. The provision of quarterly reviews as contained in para 0622 is largely restricted to comparison of booking review in On -costs vs. Actuals whereas revision is done only during Annual on-cost Budget at the end of the Financial year. (f) As and when a unit brings in additional business, overhead per unit go downwards in adaptive accounting system. However in fixed accounting system these are not captured and are not reflective of actual. Therefore costing for Non Railway Customers as per current agreements or as given in para 0623 (a) will be adopted where the customers are required to avail services from Railways on nomination basis or are covered by long term arrangements like defence and Postal dept. However in environment where work is awarded by competitive bidding or negotiated by PSUs and other Non-Government entities including foreign buyers and where there is strong possibility of Price being a prime consideration for business being awarded or otherwise and where Opportunity cost ( revenue) if discount is offered is positive, following methodology of costing will be offered - i) In cases where work is likely to be awarded on single or limited tender, costing will be offered as per para 0623(a) however if the purchaser insists on negotiations the following discounts can be offered by CWM or SAG officer incharge without Finance concurrence if he has compared market price of similar products and has recorded reasons including price analysis that entire Direct cost will be recovered even after discount – - Nil discounts on Direct Material + Labor cost -25% Discount on Shop on cost and General On cost -up to 50 % Discount on Performa on Cost and Profit ii) Discounts to be offered with approval of PHOD (PCME) with concurrence of associated workshop Finance. - Nil on Direct Material & Direct Labor Cost - Upto 75 % on Shop and General On Cost -upto 85% on Performa On Cost and Profit iii) If the Railways directly or through Railway PSU ( RITES, IRCON or any other Railway/PSU) has to offer price in competitive bidding, the cost of product as well as market price and cost of competitors should be analyzed in writing and price decided beforehand. Discounts can be offered during initial bidding or during negotiations. Discounts can be offered to the same extent as described in para during initial bid or at the stage of negotiations. Records should be submitted to Finance for Post Audit after completion of work order to check that direct Labour and material have been fully recovered. iv) If full discount of Proforma on-cost and Profit is proposed to be offered for meeting the competition, provisions in Para 0623(a) may be adopted with approval of General Manager after concurrence of Finance. (g) GM of PUs is empowered for: i) Reduction of Fixed overhead to the extent of 100% irrespective of the quantity produced ii) Waiving off Contingency and warranty charges iii) Waiving off cost due to contribution to Pension Fund iv) Reduction of Depreciation Reserve Fund to the extent of 100% (h) Since employees are paid a guaranteed wage regardless of their level of output, GM of a PU should be empowered to waive off the wages of the direct labor and to include only the incentive component, for export pricing, in case the surplus capacity of a PU is being used to meet the requirement of the customer.

624. Costing of POH of Rolling Stock Importance of proper maintenance of rolling stock for providing safety and comfort to the Traveling Public is well recognized. The basic maintenance of coaches EMU/MEMU and wagons is done in workshops during periodical overhaul. It is, therefore, necessary that special efforts are made to ensure good workmanship and ensure quality of repair during POH in workshops so that the coaches give reliable service on line. Open line depots have been equipped for carrying out safety checks and maintenance of passenger amenities in coaches. Hence, it is reiterated that adoption of the right repair practices during POH in workshop is of paramount importance.

625. Variation of unit repair cost from work shop to workshop and also in the same workshop from quarter to quarter, differences with regard to classification of repair in Mechanical and Electrical departments have led to the necessity of streamlining the booking of material and labor to POH, IOH and to other repairs. In the process of streamlining the following are to be ensured. Defining standard Allowed Time for POH based on a. Must Change Items and Schedules of normal POH b. Condition of Rolling stock. Unscheduled repairs based on the condition of the rolling stock may be booked to Corrosion repair activity where separate work order exists to collect the expenditure under POH cum Corrosion activity. c. Cost of replacement of High value items Para reference of respective Coach/ Wagon Maintenance Manual published by the Railway Board must also be given against each of the above classification. Similar standards must be prescribed for Mid Life Rehabilitation. (MLR). i. Existing procedure regarding collection of Expenditure for POH and POH cum corrosion may be continued as the same is in line with Finance code Vol.II ii. Corrosion repair, though a part of POH should be collected separately and added to POH cum Corrosion activity.

626. The necessity of knowing the cost spent on each type of Rolling Stock has led to new system of arriving at POH unit cost per Coach, per Wagon and per Locomotive, Per EMU/MEMU.: The Revised Costing system (RCS) which arrives at Unit Repair Cost of each Loco has already been implemented in all workshops in respect of POH of AC Locos and Diesel Locos in Indian Railways. Under this system, the bills to other zonal Railways are based on the Loco wise Unit Repair Cost generated under the system and transfers to Revenue in respect of POH to Home Railway Locos are also based on the Revised Costing system bills. This system is realistic as the actual labor and Material utilized per Loco along with Labor and Stores On cost is the transfer price. The salient features of Revised costing System are in Annexure-I.

627. Revised Costing System already implemented in electric and diesel Loco workshops of Indian Railways aims at arriving at loco wise costing wherein the POH ( Periodical over Haul) cost is grouped into three categories viz. Group A ( dealing with all scheduled repairs ie. POH: Group B (dealing with items changed/ replaced on condition basis) and Group C (cost of replacement of High value items). This is the only system where the cost of POH of Rolling stock based on the material consumption and not drawal. This system must be extended to coaches and Wagons after setting standards for POH of Coaches and Wagons.

628. The following steps must be taken by HOD incharge of workshop at HQ of a Railway along with respective CWMs of all workshops for introduction of Coach wise, wagon wise costing. a. Defining Must change items (with reference of Coach and Wagon Maintenance Manual) and categorizing them as Group A for type-wise Rolling stock. b. Identification of Cost Centers engaged in specific portion of POH activity c. Defining items to be replaced based on condition (with reference to Coach & Wagon Maintenance Manual) and categorizing the same as Group B. d. Listing some of the High value Items requiring to be replaced on necessity and branding the same as Group C along with a list of Capital Spares. e. Arriving at type wise Rolling stock cost data in time to prefer other Railway debits and also for Home Railway transfer to Revenue Demand. f. Ensuring proper linking of costing data with Financial Accounts. g. Creation of a network of computers so as to capture cost data on a real time basis at the shop floor itself.

629. Reconciliation and merger of Costing records with financial records All workshop expenditures are routed through Workshop Manufacturing Suspense and clearance of Workshop Manufacturing Suspense to various Final Heads should be on the basis on Costing data generated for type-wise Rolling Stock. All Budgetary Reviews should be based on the type wise cost of Rolling stock available as per Cost records. The Balance under WMS as at the end of the financial year should only reflect the value of work in progress to be completed in the ensuing month. Clearance or credits in respect of completed work for the financial year must be chased before the closure of March accounts to ensure minimum balance under WMS.

630. Managerial Statements An illustrative list of Managerial statements that should be prepared on the computer system for every workshop is given below. This can be abridged or elaborated based on local needs. 1. Day End Reports To CWM a. Percentage of absenteeism b. Total Gate Attendance Hours Vis-a-vis Job Card Hours c. Number of Rolling Stock attended on each bay d. Idle time booked with reasons, shop wise e. Reconciliation of Time Taken with Gate Attendance and reasons for variations. f. Urgent requirement of materials ( Both stock & non stock) 2. Weekly Reports to CWM and CWE (items e & f) a. Outturn of Rolling stock Type wise b. Labor hours spent on each type of Rolling Stock turned out during that week c. % of outturn achieved compared with the Target d. Over Time booked if any to meet the target e. Reason for slow or staggered working (if any) on account of want of material or otherwise. f. Position of Material availability to ensure smooth functioning in the ensuing week. 3. Weekly Reports to CWE a. % of outturn achieved compared with the Target b. Position of Material availability to ensure smooth functioning in the ensuing week. c. Any special problem faced by CWM. 4. Monthly Reports to CME/CWE as part of MCDO a. Outturn of Rolling stock item-wise and type-wise compared with the Target b. Unit Repair Cost of Rolling stock item-wise and type-wise compared with previous month’s actual. c. Suggestions to overcome shortcomings experienced during the month under review. d. With a view to encourage Workers participation in Management suggestions from grass root level for system improvement may be called for, studied for feasibility and implement with due reward immediately. a and b of monthly reports may be utilized by Railway Board to fix the annual targets and fix transfer price for POH. 5. Quarterly Report a. On Cost review done by executive and workshop account officer Based on the above list, CWM of every Workshop should decide in consultation with FA&CAO (S&W), CMM, and executive Departmental officers, the formats of statements needed for Managerial control according to their local needs and get them incorporated in the Management Information/ERP system. These would be reviewed periodically by concerned PHOD and should also be discussed in the General Manager’s meeting with PHODs. There should be a constant endeavor to reduce costs without compromising quality.

631. Use of costing data The practice of incremental budgeting must be dispensed with and the Budget Estimates should be proportionate to the physical outturn projected during the various Budgetary Reviews. The Budgetary Reviews submitted by workshop should be based on the costing data for type wise rolling stock. Annexure.6.1 Revised Costing System This system of costing contemplated by RITES aims at arriving at the POH cost incurred per loco. This is the only system available to arrive at unit repair cost in respect of major repair activity. FEATURES: 1. The cost incurred is divided into three categories viz. Group ‘A’, group ‘B’ & group ’C’. 2. Group ‘A’ cost is the usual scheduled repair to be attended to in respect of all locos and hence the total cost incurred under this group is averaged amongst the locos turned out during that month. 3. Each group is divided into various cost centers based on work and the cost will be collected cost centre wise. 4. Group ‘B’ cost is cost incurred on each loco based on the condition of individual loco. 5. Under this group ‘B’ additional expenditure on account of 6P/ABC/DBC/ spl etc. are brought in to account. 6. Group ‘C’ cost will reflect the high value items replaced in respect of individual loco turned out during the month. 7. All expenditure booked cost centre wise are apportioned to the locos turned out during the month based on standard p d ratio(based on equated output) 8. The greatest advantage of this system is that the stores cost is based on consumption and not drawal. 9. This enables comparison of unit repair cost of locos every month. 10. For comparison purpose, only group A cost is taken as standard POH cost. This system helps in identifying the excess drawl of material against LOCO POH as the consumption alone is accounted in the bills.

Multiple choice questions:

Q1. What is used to capture direct labour hours for respective work orders in railway workshops?

• A) Time Sheets
• B) Job Cards or Squad Cards
• C) Payroll System
• D) Attendance Register

Answer: B) Job Cards or Squad Cards

Q2. How are direct labour hours calculated for labour payment in the workshop general register and labour sub-ledger?

• A) By multiplying with the Average Daily Rate
• B) By multiplying with the Average Monthly Rate
• C) By multiplying with the Average Hourly Rate
• D) By using standard labour rates

Answer: C) By multiplying with the Average Hourly Rate

Q3. What should be used for the computation of the Average Hourly Rate in workshops?

• A) Previous month's data
• B) Quarterly data
• C) Same month’s data
• D) Annual data

Answer: C) Same month’s data

Q4. Which system must be implemented to allow day-to-day capturing of labour hours work order wise?

• A) HR Management System
• B) Financial Accounting System
• C) ERP System
• D) Payroll System

Answer: C) ERP System

Q5. What is the basic record for the drawal of stores in workshops?

• A) Stores Register
• B) Issue Note
• C) Inventory List
• D) Receipt Note

Answer: B) Issue Note

Q6. What system should WISE be linked to for clear recording of stores drawn by workshops?

• A) HRIS
• B) MMIS
• C) ERP
• D) WMS

Answer: B) MMIS

Q7. How is material cost for non-stock items incorporated in the workshop general register (WGR)?

• A) By using the standard rate
• B) By input from the Workshop Accounts office
• C) By the average rate of stock items
• D) By procurement cost

Answer: B) By input from the Workshop Accounts office

Q8. What constitutes overheads in railway workshops?

• A) Direct labour costs
• B) Direct material costs
• C) Expenditure that cannot be directly allocated to a product or service
• D) Contractual payments

Answer: C) Expenditure that cannot be directly allocated to a product or service

Q9. What type of on-costs includes wages of workshop apprentices, leave pay, and stationery used in shops?

• A) General On Cost
• B) Shop On Cost
• C) Administrative On Cost
• D) Overheads

Answer: B) Shop On Cost

Q10. What should be done quarterly to ensure the efficiency of overhead percentages?

• A) Annual Budgeting
• B) Review of efficiency of overhead percentages
• C) Issuing fresh work orders
• D) Conducting a financial audit

Answer: B) Review of efficiency of overhead percentages

Q11. Who should review the trend of the on-cost budget every quarter?

• A) Chief Workshop Manager
• B) Workshop Accounts Officer
• C) Senior scale/JA grade executive officer in charge of Production Control Organization
• D) General Manager

Answer: C) Senior scale/JA grade executive officer in charge of Production Control Organization

Q12. What is the basis for generating costing data for material consumption in workshops?

• A) Material drawal
• B) Material consumption
• C) Material procurement
• D) Material issue notes

Answer: B) Material consumption

Q13. What type of work order should be created for labour and material costs that are actually incurred in individual shops?

• A) Standing Work Orders for General On Cost
• B) Proforma Work Orders
• C) Standard Work Orders
• D) Standing Work Orders for Shop On Cost

Answer: D) Standing Work Orders for Shop On Cost

Q14. What are included in the General On Cost of a workshop?

• A) Direct material costs
• B) Labour costs specific to a shop
• C) Expenditure common to more than one shop
• D) Incentive bonuses

Answer: C) Expenditure common to more than one shop

Q15. What costing method includes the marginal cost charged to units of cost, while the fixed cost for the period is written off against the contribution?

• A) Absorption Costing
• B) Activity-Based Costing
• C) Marginal Costing
• D) Standard Costing

Answer: C) Marginal Costing

 

Q16.What is the primary objective of costing in Indian Railway workshops?

• A) To determine the selling price of products
• B) To measure the efficiency and improve it
• C) To manage inventory levels
• D) To standardize product designs

Answer: B) To measure the efficiency and improve it

Q17.Which costing system is used for workshops engaged in the manufacture of spare parts required during POH of Rolling Stock?

• A) Process Costing System
• B) Job Costing System
• C) Batch Costing System
• D) Revised Costing System

Answer: B) Job Costing System

Q18.In the Job Costing System, how is the unit cost of manufacture determined?

• A) By dividing total cost by total hours worked
• B) By comparing costs with market prices
• C) By dividing total cost by the quantity completed for the work order
• D) By using average costs from previous years

Answer: C) By dividing total cost by the quantity completed for the work order

Q19.What is the purpose of the Final Completion Advice (FCA) in the Job Costing System?

• A) To initiate the start of a new job
• B) To generate the cost sheet and determine the unit rate of manufacture
• C) To approve material requisitions
• D) To document the time taken for each operation

Answer: B) To generate the cost sheet and determine the unit rate of manufacture

Q20.What should be done when a new standard part is to be manufactured for stock purposes?

• A) Start production immediately
• B) Check existing stock levels
• C) Send the approved drawing to the Workshop Production Office
• D) Obtain market price comparisons

Answer: C) Send the approved drawing to the Workshop Production Office

Q21.What information is recorded on a Process Sheet in Form No. M.0608?

• A) Material costs only
• B) Labour hours only
• C) Operations required to manufacture components in sequence
• D) Final cost of the product

Answer: C) Operations required to manufacture components in sequence

Q22.What action is taken for sub-work orders that remain incomplete for more than three months?

• A) They are cancelled
• B) They are revised and restarted
• C) They are reported to the Works Manager
• D) They are merged with other work orders

Answer: C) They are reported to the Works Manager

Q23.Who is responsible for arranging recoupment when stock levels reach the fixed minimum?

• A) Production Engineer
• B) Officer-in-charge of the Workshop Stores
• C) Costing Section
• D) General Manager

Answer: B) Officer-in-charge of the Workshop Stores

Q24.What is the purpose of a Route Card in the manufacturing process?

• A) To document the time worked by employees
• B) To authorize shops to undertake the manufacture of components/assembly
• C) To track material requisitions
• D) To summarize completed work orders

Answer: B) To authorize shops to undertake the manufacture of components/assembly

Q25.What does the term "Prime Costs" refer to in the context of costing?

• A) Overheads and indirect costs
• B) Direct labour and direct material
• C) Administrative expenses
• D) Cost of utilities

Answer: B) Direct labour and direct material.

******