Page 36 - MA - May 2017

COVER ST OR Y

Feasibility analysis of Activity Based Costing Model for l Collection of realistic data.
Railways: l Selection of suitable cost drivers.
The application of activity based costing can bring the l Introduction of information technology software for
following advantages to Indian railways: the implementation of activity based costing system.
l The cost can be viewed not in terms of aggregate l Training of employees for the application of activity
value rather it can be viewed in exhaustive form for based costing approach.
each activity. l Proper communication network for effective data
l The activities bearing more cost can be identified and processing.
the activity based management system for the cost l Introduction of activity based management for the
control can be applied for that activity. efficient implementation of activity based costing.
l Activity Based Costing helps to identify the value l Integration of activity based management with
adding and non value adding services. The focus can management information system.
be made on value adding services and the expenses
on non value adding services can be eliminated. Conclusion:
For, example, in the passenger transport activity, Reduction of cost and controlling of cost is a
the food services, and cleanliness is value adding continuous process. Activity Based Costing is a costing
activities. However, the ticket examination by train system which tries to charge the indirect costs to the
ticket examiner (TTE) is done twice or thrice and products and services fairly and suitably. However, it can
ticket checking by two or three TTE can be avoided. be effectively implemented with the collective effort of
This is non-value adding activities and expenses employees by imparting training. The working system
incurred on two or more train ticket examiners can would be reviewed at regular interval to ensure the
be saved. The train ticketing examination should be application of the model. The estimated expenditure
strictly followed at once. The rationale behind activity on passenger operation of Indian Railways for the year
based costing is that the attention can be focused on 2017-18 has been budgeted as is Rs 77,000 crore while
the value adding activities services while non value the receipt has been estimated as Rs 44,000 based on
adding activities can be eliminated in the future. previous year data. The operational loss of Rs 33,000
l Activity based costing approach acts as a more should be efficiently administered to convert it into
suitable costing system for service companies profit else the loss will reel off to the public at large in
providing services at large scale. the form of hike in rail fare. Hence, the techniques of
l It helps to determine appropriate costing. cost reduction and cost control can prove as a boon
l The appropriate costing method will pass on the for the crown of our country. Activity Based costing
benefits to public at large and railway intends to serve system can be an effective tool for product or service
public. costing. It will be helpful to identify the non productive
l Activity based costing helps to analyse the cost in activities and elimination of cost being incurred on
detail for each activity which helps the management those non value adding activities. Peter F. Drucker in his
to take necessary decisions. book Management Challenges for 21st century quoted
l The services offered by the railway companies have “Traditional cost accounting focuses on cost of doing
to meet today’s customer requirements and the something whereas Activity Based Costing also records
services have to be produced efficiently to make them cost of not doing something...”
cost competitive. Higher productivity combined with
greater attractiveness can improve profitability for References:
rail freight. 1. www.cjournal.cz
Measures to be taken before the application of Activity 2. www.pib.nic.in
Based Costing Model for Railways: 3. www.indiatoday.in
4. www.businesstoday.in
There are certain points which should be borne by 5. www.icmai.in
railways before the implementation of Activity Based 6. www.kth.se
Costing model: 7. www.planningcommission.nic.in
l Systematic identification of different activities of
railways. cwakalyani@gmail.com

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