Page 30 - MA - May 2017

COVER ST OR Y

Cost determination under traditional costing:
Under the traditional absorption costing, costs are not traced to the activities. The overheads are allocated to
production and service cost centres with the help of primary distribution then the overheads of service cost centres
are absorbed by the production cost centres.

Figure 2: Cost determination under traditional costing

Application of activity based costing in railways:
Railway has been considered as lifeline of economic growth of India and connecting the length and breadth of
India. The rail services can be broadly classified under rail freight services and passenger services. The revenue from
freight services accounts for two third of total revenue of railways. More than 1,000 million tonnes of freight is
carried by Indian Railways per year and nearly 5,000 freight trains are operating daily. Indian Rail freight services
mainly carries the commodities like coal, iron ore, food grains, steel, cement, petroleum products, and fertilizers.
The number of passengers and goods carried by Railways and revenue earned there from during the five years can
be seen as follows:

Year Passenger (Million) Earnings from passenger Loads of goods (million Earnings from goods
carried (Rs. Millions) tonnes) carried (Rs. Million
tonnes)
2009-10 7,246 2,34,144 886 5,69,,115
2010-11 7,651 2,57,056 922 6,06,870
2011-12 8,224 2,82,464 969 6,77,436
2012-13 8,421 3,13,228 1,008 8,34,788
2013-14 8,397 3,65,323 1,052 9,15,708

(Source: Ministry of Railways)

Vision 2020 of Indian railways targets to earn the revenue of Rs. 80 billion by the year 2019-2020. The estimated
contribution of rail freight services to gross domestic product of India under different five year plans can be seen
as follows:

30 The Management Accountant l May 2017 www.icmai.in