transportation cost

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COST ACCOUNTING STANDARD

TRANSPORTATION

Operating Costing

It is a method of costing applied by undertakings which provide service rather than production ofcommodities. Like unit costing and process costing, operating costing is thus a form of operationcosting. The emphasis under operating costing is on the ascertainment of cost of renderingservices rather than on the cost of manufacturing a product. It is applied by transport companies,gas and water works, electricity supply companies, canteens, hospitals, theatres, school etc.Within an organisation itself certain departments too are known as service departments which

provide ancillary services to the production departments.

For example, maintenance department; power house; boiler house; canteen; hospital; internaltransport.

Operation Costing

It represent a refinement of process costing. In this each operation instead of each process ofstage of production is separately costed. This may offer better scope for control. At the end ofeach operation, the unit operation cost may be computed by dividing the total operation cost bytotal output.

It is defined as the refinement of process costing. It is concerned with the determination of thecost of each operation rather than the process. In those industries where a process consists of

distinct operations, the method of costing applied or used is called operation costing. Operationcosting offers better scope for control. It facilitate the computation of unit operation cost at theend of each operation by dividing the total operation cost by total input units. It is the category ofthe basic costing method, applicable, where standardized goods or services result from asequence of repetitive and more or less continuous operations, or processes to which costs arecharged before being averaged over the units produced during the period. The two costingmethods included under this head are process costing and service costing.


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Role of Operating Cost Accounting

Balance sheets and profit and loss statements do not reveal how profitable one product is versusanother, or whether one plant produces more efficiently than another. Although the stockholderor investment analyst may care little about details of efficiency and cost since to them the overall

profit of the business is sufficient, management must take a different point of view. Naturally,management is interested in maintaining the overall position of the company.The overall position of a company can include such measures as how successfully it competes,how it is perceived by its customers, competitors, and investors, and its capacity for futuregrowth.

In cost accounting the total expenditures in operating a business are broken down on per item orper unit basis, as for example the cost of producing a gallon of gasoline, a ton of coal, a dozenshirts, or a refrigerator. The same idea can be extended to cost per production order, as when aspecial product is made for a customer, or extended to cost per activity or operation, such as thecost of drilling inch holes, or plating sheet metal of a certain size and quality.

Cost accounting provides information for the following purposes:

1. Cost determinationThe costs and expense of a business are recorded, classified, and allocated to various jobs,

departments, products, or services.

2. Costs for pricingOnce costs are determined, the information also serves as a guide regarding prices to be quoted

to customers. Even though selling prices are governed only partly by the costs of production, in

the long run the selling price must at least equal the costs of production, or there will be seriousconsequence to the profit and loss statement.

3. Cost for managerial decisionIn a sense, both cost determination and cost for pricing provide bases for managerial decisions.

Although managerial decision making actually becomes much more complex than the statementabove implies, cost information may be helpful in making decision that have to do with (a)whether to add a new product, or to drop one that is now being produced (b) Whether tomanufacture a certain unit, or buy it on the outside, and (c) whether to add certain sales terroriesand drop others.

4. Cost controlOne of the more essential purposes of cost accounting is control of expenditures. Such control

leads to efficiency in the use of labor, materials machines and plants. Although to a large extentselling prices aredetermined by competition, the profit-making capacity of a business is guided by the efficiencywith which costs are controlled.


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Introduction of Transportation cost

The cost accounting principles for tracing/ identifying an element of cost, itsallocation /apportionment to a product or service are well established. Transportation cost is animportant element of cost for procurement of materials for production and for distribution of

product for sale. Therefore, cost accounting records should present transportation cost separatelyfrom the other cost of inward materials or cost of sales of finished goods. The Finance Act 2003also specifies the certification requirement of transportation cost for claiming deduction whilearriving at the assessable value for excisable goods cleared for home consumption / export.There is a need to standardize the record keeping of expenses relating to transportation andcomputation of transportation cost.

Economic Impacts refer to costs and benefits. Costs (benefits) reduce (increase) scarceresources such as money, time, land, health, environmental quality, or any other item of value.Costs and benefits have a mirror image relationship: a cost can be defined as a reduction in

benefits and a benefit can be defined as a reduction in costs. Transportation benefits are oftenmeasured in terms reduced transportation costs. For example, congestion reduction benefitsconsist of reductions in travel time and vehicle operating costs. Calculating costs is therefore the

basis for calculating benefits.

Economists have developed estimates of many transportation costs for use in economicanalysis, including vehicle expenses, travel time costs, road and parking facility costs, crashcosts and environmental costs. This chapter summarizes these cost estimates and describes howto obtain additional information on individual costs.

This Encyclopedia evaluates TDM strategies based on effectiveness in achieving various

transportation improvement objectives (i.e., benefits), including congestion reduction, road andparking facility savings, consumer savings, road safety, and environmental protection(Evaluating TDM). These benefits are usually measured in terms of cost reductions, so thischapter primarily describes transportation costs. However, focusing on costs does not ignoretransportation benefits.

Transport systems face requirements to increase their capacity and to reduce the costs of

movements. All users (e.g. individuals, enterprises, institutions, governments, etc.) have

tonegotiate or bid for the transfer of goods, people, information and capital because supplies,

distribution systems, tariffs, salaries, locations, marketing techniques as well as fuel costs are

changing constantly. There are also costs involved in gathering information, negotiating, and

enforcing contracts and transactions, which are often referred as the cost of doing business.

Trade involves transactions costs that all agents attempt to reduce since transaction costs account

for a growing share of the resources consumed by the economy.Frequently, enterprises and

individuals must take decisions about how to route passengers or freight through the transport

system. This choice has been considerably expanded in the context of the production of lighter

and high value consuming goods, such as electronics, and less bulky production techniques. It is

not uncommon for transport costs to account for 10% of the total cost of a product. This share

also roughly applies to personal mobility where households spend about 10% of their income for

transportation, including the automobile which has acomplex cost structure. Thus, the choice of

a transportation mode to route people and freight within origins and destinations becomesimportant and depends on a number of factors such as the nature of the goods, the available
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infrastructures, origins and destinations, technology, and particularly their respective distances.

Jointly, they define transportation costs.

Transport costs are a monetary measure of what the transport provider must pay to produce

transportation services. They come asfixed (infrastructure) and variable (operating)costs,

depending on a variety of conditions related to geography, infrastructure, administrative barriers,

energy, and on how passengers and freight are carried. Three majorcomponents, related to

transactions, shipments and the friction of distance, impact on transport costs.

Transport costs have significant impacts on the structure of economic activities as well as on

international trade. Empirical evidence underlines that raising transport costs by 10% reduces

trade volumes by more than 20%. In a competitive environment where transportation is a service

that can be bided on, transport costs are influenced by the respective rates of transport

companies, the portion of the transport costs charged to users.

Rates are the price of transportation services paid by their users. They are the negotiatedmonetary cost of moving a passenger or a unit of freight between a specific origin and

destination. Rates are often visible to the consumers since transport providers must provide this

information to secure transactions. They may not necessarily express the real transport costs.

The difference between costs and rates either results in a loss or a profit from the service

provider. Considering the components of transport costs previously discussed, rate setting is a

complex undertaking subject to constant change. For public transit, rates are often fixed and the

result of a political decision where a share of the total costs is subsidized by the society. The goal

is to provide an affordable mobility to the largest possible segment of the population even if this

implies a recurring deficit (public transit systems rarely make any profit). It is thus common for

public transit systems to have rates that are lower than costs. For freight transportation and many

forms of passenger transportation (e.g. air transportation) rates are subject to a competitive

pressure. This means that the rate will be adjusted according to the demand and the supply. They

either reflect costs directly involved with shipping (cost-of-service) or are determined by the

value of the commodity (value-of-service). Since many actors involved in freight transportation

are private rates tend to vary, often significantly, but profitability is paramount.
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2. Costs and Time Components

Transportation offers aspectrumof costs and level of services. The price of a transport service

does not only include the direct out-of-the-pocket money costs to the user but also includes time

costs and costs related to possible inefficiencies, discomfort and risk (e.g. unexpected delays).However, economic actors often base their choice of a transport mode or route on only part of

the total transport price. For example, motorists are biased by short run marginal costs. They

might narrow down the price of a specific trip by car to fuel costs only, thereby excluding fixed

costs such as depreciation, insurance and vehicle tax. Many shippers or freight forwarders are

primarily guided by direct money costs when considering the price factor in modal choice. The

narrow focus on direct money costs is to some extent attributable to the fact that time costs and

costs related to possible inefficiencies are harder to calculate and often can only be fully assessed

after the cargo has arrived. Among the most significantconditions affecting transport costsand

thus transport rates are:

Geography. Its impacts mainly involve distance and accessibility. Distance is commonly themost basic condition affecting transport costs. The more it is difficult to trade space for acost, the more thefriction of distanceis important. It can be expressed in terms of length,time, economic costs or the amount of energy used. It varies greatly according to the type oftransportation mode involved and the efficiency of specific transport routes. Landlockedcountries tend to have higher transport costs, often twice as much, as they do not have directaccess to maritime transportation. The impact of geography on the cost structure can beexpanded to includeseveral rate zones, such as one for local, another for the nation andanother for exports.

Type of product. Many products require packaging, special handling, are bulky orperishable. Coal is obviously a commodity that is easier to transport than fruits or freshflowers as it requires rudimentary storage facilities and can be transshipped usingrudimentary equipment. Insurance costs are also to be considered and are commonly afunction of thevalue to weight ratioand the risk associated with the movement. As such,differenteconomic sectors incur different transport costsas they each have their owntransport intensity. With containerization the type of product plays little in the transport costsince rates are set per container, but products still need to be loaded or unloaded from thecontainer. For passengers, comfort and amenities must be provided, especially if longdistance travel is involved.

Economies of scale. Another condition affecting transport costs is related to economies ofscale or the possibilities to apply them as the larger the quantities transported, the lower theunit cost. Bulk commodities such as energy (coal, oil), minerals and grains are highlysuitable to obtain lower unit transport costs if they are transported in large quantities. Forinstance, moving a barrel of oil over 4,000 km would cost $1 on a 150,000 deadweight tonstanker ship and $3 on a 50,000 deadweight tons tanker ship. A similar trend also applies tocontainer shipping with larger containerships involving lower unit costs.

Energy. Transport activities are large consumers of energy, especially oil. About 60% of allthe global oil consumption is attributed to transport activities. Transport typically account for

about 25% of all the energy consumption of an economy. The costs of several energy
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intensive transport modes, such as air transport, are particularly susceptible to fluctuations inenergy prices.

Trade imbalances. Imbalances between imports and exports have impacts on transportcosts. This is especially the case for container transportation since trade imbalances imply the

repositioning of empty containers that have to be taken into account in the total transportcosts. Consequently, if a trade balance is strongly negative (more imports than exports),transport costs for imports tend to be higher than for exports. Significanttransport rateimbalanceshave emerged along major trade routes. The same condition applies at thenational and local levels where freight flows are often unidirectional, implying emptymovements.

Infrastructures. The efficiency and capacity of transport modes and terminals has a directimpact on transport costs. Poor infrastructures imply higher transport costs, delays andnegative economic consequences. More developed transport systems tend to have lowertransport costs since they are more reliable and can handle more movements.

Mode.Different modes are characterized by different transport costs, since each has its owncapacity limitations and operational conditions. When two or more modes are directlycompeting for the same market, the outcome often results in lower transportcosts.Containerized transportationpermitted a significant reduction in freight transport ratesaround the world.

Competition and regulation. Concerns the complex competitive and regulatoryenvironment in which transportation takes place. Transport services taking place over highlycompetitive segments tend to be of lower cost than on segments with limited competition(oligopoly or monopoly). International competition has favored concentration in manysegments of the transport industry, namely maritime and air modes. Regulations, such astariffs, cabotage laws, labor, security and safety impose additional transport costs,

particularly indeveloping countries.

Surcharges. Refer to an array of fees, often set in an arbitrary fashion, to reflect temporaryconditions that may impact on costs assumed by the transporter. The most common are fuelsurcharges, security fees, geopolitical risk premiums and additional baggage fees. The

passenger transport industry, particularly airlines, has become dependent on a wide array ofsurcharges as a source of revenue.

Thetransport time componentis also an important consideration as it is associated with theservice factor of transportation. They include the transport time, the order time, the timing, the

punctuality and the frequency. For instance, a maritime shipper may offer a container transport

service between a number of North American and Pacific Asian ports. It may take 12 days to

service two ports across the Pacific (transport time) and a port call is done every two days

(frequency). In order to secure a slot on a ship, a freight forwarder must call at least five days in

advance (order time). For a specific port terminal, a ship arrives at 8AM and leaves at 5PM

(timing) with the average delay being two hours (punctuality).
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3. Types of Transport

CostsMobility tends to be influenced by transport costs. Empirical evidence for passenger

vehicle use underlines therelationship between annual vehicle mileage and fuel costs, implying

the higher fuel costs are, the lower the mileage. At the international level, doubling of transportcosts can reduce trade flows by more than 80%. The more affordable mobility is, the more

frequent the movements and the more likely they will take place over longer distances. A wide

variety of transport costs can be considered.

Terminal costs.Costs that are related to the loading, transshipment and unloading. Two major

terminal costs can be considered; loading and unloading at the origin and destination, which are

unavoidable, and intermediate (transshipment) costs that can be avoided.

Linehaul costs. Costs that are a function of the distance over which a unit of freight or passenger

is carried. Weight is also a cost function when freight is involved. They include labor and fueland commonly exclude transshipment costs.

Capital costs. Costs applying to the physical assets of transportation mainly infrastructures,

terminals and vehicles. They include the purchase or major enhancement of fixed assets, which

can often be a one-time event. Since physical assets tend to depreciate over time, capital

investments are required on a regular basis for maintenance.

Transport providers make a variety of decisions based on their cost structure, a function of all the

above types of transport costs. To simplify transactions and clearly identify the respective

responsibilities specificcommercial transportation termshave been set. While the transport price

plays an important role in modal choice, firms using freight transport services are not always

motivated by notions of cost minimization. They often show "satisficing behavior" whereby the

transport costs need to be below a certain threshold combined with specific requirements

regarding reliability, frequency and other service attributes. Such complexities make it more

difficult to clearly assess the role of transport price in the behavior of transport users. The role of

transport companies has sensibly increased in the general context of the global commercial

geography. However, the nature of this role is changing as a result of a general reduction of

transport costs but growing infrastructure costs, mainly due to greater flows and competition for

land. Each transport sector must considervariationsin the importance of different transport

costs. While operating costs are high for air transport, terminal costs are significant for maritimetransport. Several indexes, such as theBaltic Dry Index, have been developed to convey a

pricing mechanism useful for planning and decision making.Technological changes and their

associated decline in transport costs have weakened the links transport modes and their

terminals. There is less emphasis on heavy industries and more importance given to

manufacturing and transport services (e.g. warehousing and distribution). Indeed, new functions

are being grafted to transport activities that are henceforward facilitatinglogistics and

manufacturing processes. Relations between terminal operators and carriers have thus become

crucial notably in containerized traffic. They are needed to overcome the physical and time

constraints of transshipment, notably at ports.The requirements of international trade gave rise tothe development of specialized and intermediary firms providing transport services. These are
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firms that do not physically transport the goods, but are required to facilitate the grouping,

storage and handling of freight as well as the complex paperwork and financial and legal

transactions involved in international trade. Examples included freight forwarders, customs

brokers, warehousing, insurance agents and banking, etc. Recently, there has been a trend

to consolidate these different intermediate functions, and a growing proportion of global trade isnow being organized by multi-national corporations that are offering door to door logistics

services.


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Definitions of Transportation cost

The following terms are used in this standard with the meaning specified:

Cost of transportation comprises of the cost of freight, cartage, transit insurance and cost ofoperating fleet and other incidental charges whether incurred internally or paid to an outsideagency for transportation of goods but does not include detention and demurrage charges.

Explanation:

Cost of transportation is classified as inward transportation cost and outwardtransportation cost.

Inward Transportation cost is the transportation expenses incurred in connection withmaterials /goods received at factory or place of use or sale /removal.

Outward Transportation cost is the Transportation expenses incurred in connection withthe sale or delivery of materials or goods from factory or depot or any other place fromwhere goods are sold /re - moved.

Freight is the charges paid or payable to an outside agency for transporting materials/goods from one place to another place.

Cartage is the expenses incurred for movement of goods covering short distance forfurther transportation for delivery to customer of storage.

Transit insurance cost is the amount of premium to be paid to cover the risk ofloss/damage to the goods in transit.

Depot is the bounded premises /Place managed internally or by an agent, includingconsignment agent and C & F agent, franchisee for storing of materials /goods for furtherdispatch including the premises of consignment Agent and C & F Agent for the purpose.

Depot includes warehouses, godowns, storage yards, stock yards etc. Equalized transportation cost means average transportation cost incurred during a

specified period.

Equalized freight means average freight.


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2. Objective Transportation cost

To bring uniformity in the application of principles and methods used in thedetermination of averaged/ equalized transportation cost.

To prescribe the system to be followed for maintenance of records for collection of costof transportation, its allocation /apportionment to cost centres, locations or products.

For example, transportation cost needs to be apportioned among excisable, exempted,nonexcisable and other goods for arriving at the average of transportation cost of eachclass of goods.

To provide transparency in the determination of cost of transportation.

3. Scope of Transportation cost

This standard should be applied for calculation of cost of transportation required under anystatute or regulations or for any other purpose. For example, this standard can be used for:

a) Determination of average transportation cost for claiming the deduction for arriving at theassessable value of excisable goods.

b) Insurance claim valuationc) Working out claim for freight subsidy under Fertilizer industry coordination committeed) Administered price mechanism of freight cost element.e) Determination of inward freight costs included or to be included in the cost of purchases

attributable to the acquisition.f) Computation of freight included in the value of inventory for accounting on inventory or

valuation of stock hypothecated with Banks /Financial institution, etc.


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Transportation costs can be categorized by the following

attributes:

1. Distribution (Internal and External Impacts)Internal (also called user) costs and benefits are borne or accrue directly by a goods

consumer. External costs and benefits are borne or accrue by others. Social costs are the total ofboth internal and external impacts. External impacts do not directly affect consumers decisions,and so are a form of market failure (Market Principles).

2. Variable and FixedVariable (also called marginal) costs increase with consumption. Fixed costs do not. For

example, fuel, travel time and crash risk are variable vehicle costs because they increase directlywith vehicle mileage, while depreciation, insurance, and residential parking are considered fixed,

because vehicle owners pay the same, regardless of how much a vehicle is used. The distinctionbetween fixed and variable often depends on perspective. For example, depreciation is oftenconsidered a fixed cost because car owners make the same payments no matter how many milesa year they drive, but a cars operating life and resale value are affected by how much it isdriven, so depreciation is partly variable over the long term.

3. Market or Non-MarketMarket costs involve goods that are traded in a competitive market, such as vehicles, land

and fuel. Non-market costs involve goods that are not regularly traded in markets such as cleanair, crash injuries, and quiet. A number of techniques can be used to determine the value thatconsumers place on non-market goods.

4. Perceived or ActualThere is often a difference between perceived and actual automobile costs. Motorists tend

to perceive immediate costs such as travel time, stress, parking fees, fuel, and transit fares, whilecosts that are paid infrequently, such as insurance, depreciation, maintenance, repairs andresidential parking, are often underestimated.

5. PricePrice refers to what a consumer pays in exchange for a particular good, or perceived-

internal-variable cost. In general, a market is most efficient if prices reflect marginal costs(Market Principles).
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Evaluating Transportation Benefits

Transportation provides tremendous benefits, and various techniques can be used to measurethese benefits (Goodwin and Persson, 1999). These are so large that it is difficult to calculate thetotal benefits of all transportation activities. However, even if such a number could be calculatedit would have little practical use. In most planning situations the important factor is the marginal(incremental) benefits provided by a particular policy or project compared with a Base Case(TDM Evaluation). Marginal transportation benefits can be divided into these two majorcategories:

1. Mobility and Access BenefitsMobility benefits result from increased travel, such as increased automobile mileage, increasedtransit or aviation trips, increased walking and cycling, and increased freight transport. Access

benefits are similar to mobility benefits, but also include the benefits from access improvementsthat reduce the need for physical travel, such as more efficient land use, delivery services andtelework. These reflect the incremental benefits compared with a reduced level of mobility oraccess, such as the benefits individuals and society gains from access to school, employment,shopping, friends and recreation activities.

2. Efficiency BenefitsEfficiency benefits result from more efficient travel, such as when travelers shift from driving to

transit or ridesharing under urban-peak travel conditions, or when a consumer avoids a trip bytelecommuting or teleshopping. These reflect the cost savings to individuals and society whentransportation becomes more efficient (fewer total resources are consumed to provide a given

benefit).

These different types of benefits require different approaches to evaluate. Mobility benefits areusually measured in terms off increased travel (Evaluating Transportation Choice). Efficiency

benefits are often measured in terms of reduced vehicle travel. A transportation evaluationprocess that only considers one category of benefits may overlook significant benefits or costs,and may result in solutions to one problem that exacerbates others. For example, the benefits of a

road capacity expansion program are measured in terms of mobility benefits. The analysisassumes that more vehicle traffic speed and volume is necessarily better. The benefits of a TDM

program intended to reduce congestion and pollution are measured in terms of efficiencybenefits. The analysis assumes that less vehicle traffic volume is better. A planning process thatis only concerned with environmental protection could reduce mobility benefits, while a

planning process that is only concerned with increasing mobility benefits could reduceenvironmental quality.Comprehensive Evaluationconsiders both types of benefits.
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Maintenance of records for ascertaining Transportation cost

Proper records shall be maintained for recording the actual cost of transportation showingeach element of cost such as freight, cartage, transit insurance and others after adjustmentfor recovery of transportation cost. Abnormal costs relating to transportation, if any, areto be identified and recorded for exclusion of computation of average transportation cost.

In case of a manufacturer having his own transport fleet, proper records shall bemaintained to determine the actual operating cost of vehicles showing details of variouselements of cost, such as salaries and wages of driver, cleaners and others, cost of fuel,lubricant grease, amortized cost of Tyres and battery, repairs and maintenance,depreciation of the vehicles, distance covered and trips made, goods hauled andtransported to the depot.

In case of hired transport charges incurred for dispatch of goods, complete details shall berecorded as to date of dispatch, type of transport used, description of the goods,destination of buyer, name of consignee, challan number, quantity of goods in terms ofweight or volume, distance involved, amount paid, etc.

Records shall be maintained separately for inward and outward transportation costspecifying the details particulars of goods dispatched, name of supplier /recipient, amountof freight etc.

Separate records shall be maintained for identification of transportation cost towardsinward movement of material (Procurement) and transportation cost of outwardmovement of goods removed /sold for both home consumption and export.

Records for transportation cost from factory to depot and thereafter shall be maintainedseparately.

Records for transportation cost for carrying any material /product to job workers placeand back should be maintained separately so as include the same in the transaction valueof the product.

Records for transportation cost for goods involved exclusively for trading activities shallbe maintained separately and the same will not be included for claiming any deductionfor calculating assessable value excisable goods cleared for home consumption.

Records of transportation cost directly allocable to a particular category of productsshould be maintained separately so that allocation in appendix 3 can be made.

For common transportation cost, both for own fleet or hired ones, proper records for basisof apportionment should be maintained.

Records for transportation cost for exempted goods, excisable goods cleared for exportshall be maintained separately.


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Separate records of cost for mode of transportation other than road like ship, air etc. areto be maintained in appendix2 which will be included in total cost of transportation.


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6.Treatment of cost:Inward transportation costs shall form the part of the cost of procurement of materials which are

to be identified for proper allocation /apportionment to the materials /products. Outwardtransportation cost shall form the part of the cost of sale and shall be allocated /apportioned tothe materials and goods on a suitable basis.

Explanation:

Outward transportation cost of a product from factory to depot or any location of sale shall beincluded in the cost of sale of the goods available for sale.

The following basis may be used, in order of priority, for apportionment cost depending upon thenature of products, unit of measurement followed and type of transport used:

(i) Weight(ii) Volume of goods(iii) Tonne-Km(iv) Unit /Equivalent unit(v) Value of goods(vi) Percentage of usage of spaceOnce a basis of apportionment is adopted, the same should be followed consistently.

For determining the transportation cost per unit, distance shall be factored in to arrive at

weighted average cost.

Abnormal and non recurring cost shall not be a part of transportation cost.

Explanation

Penalty, detention charges, demurrage and cost related to abnormal break down will not beincluded in transportations cost.


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Cost sheet

The cost sheets shall be prepared and presented in a form as per Appendices 1, 2 and 3 or asnear thereto. Appendix 1 and Appendix 2 show the details of information to be maintained for

compilation of transport cost for own fleet and hired transportation charges respectively.Appendix 1 is applicable where the organisation is having its own fleet.

The directly allocable cost of own fleet (outward) shall be identified against different categoriesof products as shown in Appendix 3 and same shall be apportioned to different categories of

products as shown in Appendix 3 on a basis which should be specified. The basis ofapportionment may be adopted depending on the nature of product as indicated in Para 6.3.Similar approach shall also be applied for hired outward transport charges.

More columns may be required to be shown in Appendix 3 specifying different types oftransactions. For example: Sale on specific rate basis, sale of waste, scrap, return from customer,

goods sent for job work, goods received after job work etc.

Unit of measurement (UM) may vary depending upon the nature of the product. For example,Number, MT, Meter, Litre etc.

Proper records shall be maintained to show separately the transportation cost relating to sendingof jobs to job contractors /convertors and receipts back of processed jobs/ converted materials.

An enterprises shall be required to maintain cost records and other books of account in a mannerwhich would facilitate preparation and verification of cost of transportation and other relatedcharges and its apportioning to various products.

Transaction value:Transaction value shall have the meaning assigned to it in Section 4 of the Central Excise Act,

1944 or section 14 of the customs Act, 1962 or as defined in any other Act or Regulations as thecase may be.

The Standard will be operative from the date of issue.Finalized by CASB WTO committee on 20 July 2005 and circulated to the Council at its

meeting on 21 July 2005 (1st draft was published in June 2002 journal)


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Travel Time Costs

Travel time is one of the largest transport costs, and travel time savings are often thegreatest potential benefit of transport improvements. Various studies have calculated

travel time values relative to wage rates based on traveler behavior, and several timevalue schedules have been developed based on such studies (Wardman 1998; Small,et al. 1999). Many specific attributes of travel, such as comfort, safety and prestige,can be reflected in travel time costs. Below are some of the main factors affectingtravel costs:

Commercial vehicle costs include drivers wages and overhead costs, vehicle costs; costsfor the value of freight (particularly perishables), and sometimes costs for delays beyonda critical delivery time.

The cost of personal travel is usually estimated at one-quarter to one-half of prevailingwage rates.

Travel time costs tend to be higher for driving under congested conditions or passengerson crowded transit vehicles, and lower for a comfortable passenger.

Travel time costs tend to be particularly high for unexpected delays. Travel time costs per minute tend to increase for longer commutes (more than about 20

minutes).

Under pleasant conditions, walking and cycling can have positive value, but underunpleasant or unsafe conditions (for example, walking along a busy highway or waitingfor a bus in an area that seems dirty and unsafe), time spent walking, cycling and waitingfor transit has costs two or three times higher than time spent traveling.

Travel time costs tend to increase with income, and tend to be lower for children andpeople who are retired or unemployed. (Or, to put it differently, people with full-timejobs tend to have more demands on their time, and so tend to be willing to pay more fortravel time savings.)

Personal needs and preferences vary. Some people place a relatively high cost on timespent driving in congestion, and place a low value on time spent as a transit passenger,while others have the opposite preferences.

A certain amount of travel time has a low cost or positive value because consumers enjoythe experience. Under certain conditions, walking, cycling, driving, train travel and airtravel are considered enjoyable and desirable, although under other conditions the sametype of travel is considered undesirable and costly.


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Environmental Costs

Several studies provide monetized estimates of the environmental costs of transportation (Bein,1997; USEPA, 1999; Delucchi, 2000; Litman, 2001). These include air, noise and water

pollution, waste disposal and the environmental impacts associated with transportation facilities,such as loss of wildlife habitat. The TRL Strategic Environmental Assessment

Newsletter provides information on efforts to monetize environmental costs for application intransportation planning. Delucchi (2000) estimates that U.S. motor vehicle environmental coststotal approximately $100 billion annually.

1. Air PollutionAir pollution is one of the most obvious environmental costs of motor vehicle use. Per mileemissions for many pollutants have declined over time due to emission control strategies. It iscommon to hear claims that automobile emissions have declined by 90% or more over the last

few decades, but this is an exaggeration. Engine and fuel improvements have significantlyreduced tailpipe emission rates under design conditions, but a significant portion of drivingoccurs under non-design conditions and non-tailpipe emissions are not controlled by thesetechnologies.

Small and Kazimi (1995) estimated Southern California motor vehicle air pollution costs ofhuman morbidity and mortality from tailpipe particulate and ozone emissions. Their middleestimate for gasoline cars is 3.3 per mile for automobiles and 53 per mile for heavy dieseltrucks. They estimate that emission costs are about 1/3 this value in regions with less serious air

pollution problems. These costs are expected to decline 50% by the year 2000 due to improvedemission controls. The authors emphasize that this is only a partial analysis. Their study does notaccount for CO and non-tailpipe particulate emissions, both of which recent research indicatecause significant medical problems. It omits impacts on people without acute medical symptomsalthough residents of polluted cities suffer reduced lung capacity and are regularly instructed tolimit their physical activities. It also omits ecological and aesthetic impacts, including globalwarming, ozone depletion, crops and wildlife damages, and reduced visibility. They state thatroad dust may add 4.3 per VMT, and global warming costs may be significant. Totalautomobile air pollution costs are therefore likely to be much higher than this studys estimates.

2. Noise PollutionMotor vehicle traffic imposes noise pollution. Traffic noise tends to increase with traffic speed,

accelerations, the portion of heavy vehicles and motorcycles, and development density. Noise

costs tend to be much higher on local urban roads, where traffic tends to be closer to residences.

Information on noise costs is available from FHWA (1997b) and the Noise Pollution

Clearinghouse.

3. Water Pollution and Hydrologic ImpactsRoads and motor vehicles use also contribute to water pollution, hydrologic impacts and waste

disposal (such as used tires) which impose a variety of costs on society (USEPA, 1999; Bein,1997). Information on hydrologic impacts is available at the NEMO Foundation


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4. Waste DisposalMotor vehicles produce a number of harmful waste products that can impose externalities,

including used tires, batteries, junked cars, oil and other semi-hazardous materials resulting from

motor vehicle production and maintenance. These wastes impose a variety of environmental,

human health, aesthetic, and financial costs, through improper disposal, residual impact even

when proper disposal is observed, and because some disposal efforts are subsidized by general

taxes. Some new laws and policies are intended to internalize these costs. Crankcase oil

recycling is encouraged, vendors are required to recycle used car batteries, and in some states a

tire tax is dedicated to tire disposal.


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Fuel Externalities

Fuel production and consumption can impose various external costs, including national securityrisks and macroeconomic impacts on individual economies that import fuel, depletion of non-renewable resources, various financial subsidies, and environmental damages (including

greenhouse gas emissions). Put another way, there may be benefits to society from increasedenergy efficiency and conservation.

The International Energy Agency, the American Petroleum Institute, the Canadian PetroleumCommunication Foundation and the Canadian Petroleum Products Institute provide fuel priceand consumption data. The Transportation Energy Data Book (ORNL, 2000, available also

provides useful information on transportation energy costs and consumption by transportationactivities.

Greene and Tishchishyna (2000) estimate that oil market upheavals of the last 30 years have cost

the U.S. economy $7 trillion (net present value) in reduced output, with a range of $3.5 to $14.6trillion. These estimates do not include military, strategic or political costs associated with U.S.and world dependence on oil imports. They point out that each of the major price shocks duringthis time period has preceded a major economic recession, and that higher petroleum import

prices reduce national GDP.

An extensive review of economic and political issues concludes that, if U.S. motor vehicles didnot use petroleum, the U.S. would reduce its defense expenditures in the long run by roughly $1to 10 billion per year. (Delucchi and Murphy, 1996). A major study by the National ResearchCouncil (NRC, 2001) estimates that these externalities average about 30 per gallon of gasoline.

1. Impacts on Non-motorized TravelChanges in the design of roads and parking facilities, vehicle traffic volumes and speeds, and thequality of the pedestrian environment can affect the convenience, safety and comfort of walkingand cycling (Evaluating Nonmotorized Transport). The Barrier Effect (also called Severance)refers to the tendency of roads and traffic to create a barrier to nonmotorized travel. It representsa degradation of the pedestrian and bicyclist environment that reduces the viability of thesemodes, often leading to increased driving.Traffic Calming,Vehicle Restrictions,Pedestrian andCycling Improvementsand variousLand Use Factorscan all have significant impacts on non-motorized transportation.

2. Road and Parking Facility CostsRoads and parking are usually provided free or bundled with facility costs (for example, parkingis usually included with housing purchases or rents) so most consumers have little idea of what aroad or parking space costs to produce. Below are typical cost data.

Highway development involves various costs, including planning and design, land acquisition,and construction costs. These costs vary significantly depending on conditions. In rural areas,

planning and land costs may be modest, and construction expenses may dominate project costs.

In urban areas, planning and land costs tend to be much higher. Adding capacity to existing roads
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can be relatively inexpensive if there is adequate right-of-way and few intersections, or veryexpensive if it requires land acquisition or rebuilding intersections.

i.Roadway Construction and Maintenance CostsRoadway expenditure data can be obtained from government accounts (Highway Statistics,FHWA and Transportation Statistics, BTS, . Also see Highway Taxes and Fees; How They AreCollected and Distributed . Cambridge Systematics (1992) and Price Trends in Federal-AidHighway Construction (a quarterly report published by the FHWA) provide information onhighway construction costs. Roadway expenditures by all levels of U.S. government totaled $117

billion in 1999. Canadian roadway expenditure data is available from TransportCanadas Transportation In Canada Annual Report and Blanchard (1996).

Highway development involves various costs, including planning and design, land acquisition,

and construction costs. These costs vary significantly depending on conditions. In rural areas,planning and land costs may be modest, and construction expenses may dominate project costs.In urban areas, planning and land costs tend to be much higher. Adding capacity to existing roadscan be relatively inexpensive if there is adequate right-of-way and few intersections, or veryexpensive if it requires land acquisition or rebuilding intersections.

Road construction costs (grading and paving, not including planning and land costs) typicallyrange from $250,000 per lane-mile in easy conditions up to $2,500,000 per lane-mile indifficult conditions (Construction and Maintenance Branch, 1998). Intersections also addsignificant costs. Rural intersections typically cost $2,000,000 to $4,000,000, while a standardurban interchange typically costs $10,000,000 to $15,000,000 for construction, plus planning and

land costs. Table 4 summarizes typical costs for roadway projects under various conditions.


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2. How Travel Changes Affect Costs The magnitude of benefits provided by TDM varies depending on the type of travel

changes they produce, location, and other factors.

Strategies that shift travel from peak to off-peak reduce congestion, and therefore per-mile vehicle cost and emission rates, although these benefits may be partly offset

byRebound Effects. Shifting to less congested travel conditions tends to reduce thenumber of crashes, but the crashes that do occur tend to cause more damage, so crashcosts do not necessarily decline.

TDM strategies that reduce average vehicle trip distances provide modest benefits,including reductions in vehicle operating costs, traffic congestion, roadway costs,crashes, and energy consumption, but pollution emission benefits are small due to coldstarts.

Strategies that reduce per capita vehicle trips provide greater benefits, includingreductions in parking costs. Strategies that shift travel to alternative modes, such as

public transit, have mixed impacts based on the difference in costs between the modes.For example, Ridesharing (using a motor vehicle seat that would otherwise travel empty)imposes minimal incremental costs, while shifting to public transit may imposesignificant incremental costs if doing so requires additional transit service.

Strategies that reduce per capita vehicle ownership provide additional benefits,including reductions in vehicle ownership and residential parking costs.

Strategies that result in more efficient land use patterns can provide a wide range ofbenefits, including reductions in vehicle ownership and use, and reductions in the amountof land paved for roads and parking.
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3. Modeling Benefits of Travel ChangesIn order to evaluate these impacts it is necessary to model the relationships between mileage and

various costs. This is measured using elasticity values, which indicate the percentage change in acost that results from a percentage change in vehicle mileage. For example, an elasticity of 1.5means that each 1.0% reduction in mileage reduces a particular cost by 1.5%. The elasticities ofvarious costs with respect to mileage are discussed briefly below.

Traffic ServicesAll else being equal, a change in vehicle mileage probably causes a proportional change in trafficservices, so the elasticity is 1.0.

Fuel ExternalitiesAll else being equal, a change in vehicle mileage causes a proportional change in fuelconsumption and related externalities, so the elasticity is 1.0. A change in congested mileagemay cause a greater change in fuel consumption and externalities, so TDM strategies that targetcongestion, such as Commute Trip Reduction programs and congestion pricing, tend to have anelasticity of greater than 1.0.

Residential ParkingChanges in per-vehicle mileage do not affect residential parking costs, and so have an elasticityof 0.0. Reductions in vehicle ownership, and management strategies that result in more efficientuse of existing parking facilities can reduce this cost. For example, Location EfficientDevelopment, carsharing, transit improvements and parking management can reduce residential

parking costs. As a result, the elasticity of residential parking costs with respect to TDM mileagereductions is estimated to average 0.5.

Roadway Land ValueChanges in per-vehicle annual mileage may cause a small change in the amount of land that isdevoted to roads. Such impacts tend to occur in urban areas where land values are high. Theelasticity is estimated to be about 0.1 (A 10% change in mileage changes roadway land costs by1%). Some TDM strategies directly reduce roadway land requirements, including Smart Growth,

New Urbanism and parking management.

Traffic Congestion

Traffic congestion is a non-linear function, so under some circumstances even a small increase intraffic volumes can cause a large reduction in congestion delay. Modeling reported in USEPA(1998) found that 4% change in total vehicle mileage in California urban areas would reducetraffic congestion by 7.5-10.5%. This suggests that the elasticity of congestion costs to vehicletravel is about 2.0 in urban areas. An elasticity of 1.0 is used for this analysis. Some TDMstrategies are particularly effective at reducing congestion, including Commute Trip Reduction

programs, road pricing and parking management.

Environmental DamagesIn general, a percentage change in vehicle mileage can be expected to cause a proportional

change in environmental damages, so the elasticity of environmental costs to mileage is assumedto be 1.0.


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Roadway CostsIn general, a percentage change in vehicle mileage can be expected to cause a proportionalchange in road damages, and a proportional or larger change in roadway capacity expansionrequirements. The elasticity of roadway costs to mileage is assumed to be 1.0, but may be larger

in growing urban areas.

Vehicle FuelA change in mileage provides a proportional change in fuel consumption, so the elasticity is 1.0.TDM strategies that target congestion reductions may provide a somewhat greater reductions infuel costs for a given reduction in mileage.

Non-residential Off-street ParkingChanges in average trip distance have no affect on parking costs, but changes in vehicle trips orownership do. Assuming that half of the additional per-vehicle annual mileage resulting fromincreased fuel efficiency consists of longer trips and half consists of increased trip making, theelasticity of parking costs with respect to mileage is 0.5. Many TDM strategies directly reduce

parking costs, including those that reduce per capita vehicle ownership, encourage use ofalternative transportation modes, and that encourage more efficient use of existing parkingcapacity.

Crash CostsChanges in total vehicle mileage tend to cause an approximately proportional change in crashes,

but a significantly larger change in total crash costs, because most serious crashes involvemultiple vehicles. One study found the elasticity of vehicle crash costs with respect to vehiclemileage is between 1.4 and 1.8, meaning that a 10% reduction in vehicle mileage reduces crash

costs and casualties between 14% and 18%. A value of 1.4 is used in this analysis. Some TDMstrategies provide extra traffic safety impacts, such as traffic calming, which reduces vehiclespeeds, and Distance-based Vehicle Insurance, which gives the higher risk drivers an extraincentive to reduce their mileage, and therefore crash risk.

Vehicle OwnershipMost vehicle ownership expenses are considered fixed and not affected by a change in annual

per-vehicle. However, many of these costs are actually partly variable. For example, increasedvehicle mileage tends to increase vehicle maintenance and repair costs, reduce vehicle operatinglife, reduce resale value, and increase the chances of an insurance claim. These additional(besides fuel and oil) mileage-based charges typically average 10-15 per vehicle mile, or about

40% of total vehicle ownership costs. As a result, the elasticity of vehicle ownership costs withrespect to mileage is estimated to be 0.4, meaning that a 10% increase in mileage increasesvehicle ownership costs by 4%.

Land Use ImpactsReductions in average vehicle trip length help reduce urban sprawl. Reductions in vehicle trips,shifts to alternative modes, reduced vehicle ownership and land use management strategies aremost effective at reducing costs associated with inefficient land use.

Equity Impacts


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Strategies that reduce unjustified underpricing and subsidies for automobile travel, andimprovements to transportation and housing choices available to people who are transportationdisadvantaged tend to increase equity.


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Name of the manufacturer:Address of the Manufacturer:

Statement of operating cost of own fleet for the period .Appendix 1

Sl No.

A Quantitative information

A1 Number of vehicles

A2 Number of trips

A3 Goods Transportedinward (UM)

A4 Goods transportedoutward (UM)

A5 Goods transportedinwardKm

A6 Goods transportedoutwardKm

A7 Total goods transported inwardbasis of apportionment (specify)

A8 Total Goods transported outward basis of apportionment(specify)

4. A9 Total (A7 + A8)5. B 6. COST INFORMATION (Rs.)

7. Cost of Operation8. Variable Cost

B1 Salaries & wages of Drivers, Cleaners and others

B2 Fuel & Lubricants

B3 Consumables

B4 Amortized cost of Tyre, tube and BatteryB5 Spares

B6 Repairs & Maintence

B7 Other variable cost (Specify)

9. B8 Total Variable Cost (B1 to B7)10. Fixed Cost

B9 Insurance

B10 Licence Fee, permit fee and Taxes

B11 Depreciation

B12 Other Fixed Costs (Specify)

11. B13 Total Fixed Cost (B9 to B12)12. B14 Total Operating Cost (B8 + B13)13. C 14. Apportionment (Basis to be specified) - usageC1 Inward Transport Cost (B14 *A7 /A9)

C2 Outward Transport cost (B14 * A8/A9)

C3 Transit insurance for inward movement

C4 Transit insurance for outward movement

C5 Total transportation cost for inward movement (C1 +c3)

C6 Total transportation cost for outward movement (C2 + C4)

Note:1. Cost of Battery, and Tyres and Tubes shall to be amortized over its useful life.


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2. Asset register shall be maintained for determination of depreciation and amortizationcost.3. Separate cost sheet shall be prepared for different types of vehicles.


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Appendix 2Name of the Manufacturer;

Address of the Manufacturer:

i.Statement of Hired Outward Transportation cost for the period ending Sl No.

A Quantitative information

A1 Quantity of goods transportedoutward (UM)

15. B1. Cost information (Rs.)

B1 Hired Transport charges

B2 Transit insurance

B3 Other (Specify)

B4 Total Transportation cost (B1 to B3)

Name of the Manufacturer:


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CONCLUSIONEven though it is noticeable the burden that transportation cost represents for thegoods traded internationally; the cost paid for the transportation of the goods is unavoidable.However, this saddle is decreasing constantly.To diminish the influence of the transportation cost over the value of the goods it is

mandatory that each country invests in infrastructure strategically. Moreover, each companyis required to implement an integrative approach in planning and controlling the flow ofmaterials from suppliers to end-users.

transportation cost

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