WORSHOP ACCOUNTS



NO SUBJECT PAGE
1 MAKE OR BUY DECISION IN RAILWAYS- WORKSHOPS
2 COMPARISON OF TWO SCHEMES – INCENTIVE
3 CONCEPT OF COST CONSCIOUSNESS
4 VARIATION IN POH COST
5 REVISED COSTING OF AC LOCOS IN WORKSHOPS
6 WORKSHOP MANUFACTURING SUSPENSE ACCOUNT
7 OUTTURN STATEMENT
8 COSTING SYSTEM IN WORKSHOPS
9 WORK ORDER SYSTEM
10 LIFE CYCLE COSTING
11 ANNUAL ROLLING STOCK PROGRAM















WORKSHOP ACCOUNTS
There is a Proposal to off-load certain items from manufacture in Rail­way workshop to trade. What are the points to be seen in such a propo­sal?
The decision to make or buy is a crucial Management decision. It leav­es an indelible mark on the efficiency of any organization. While the decision to off-load certain items from manufacturing to trade improves the Stores Inventory and overall turnover ratio, any erroneous decision to off-load vital items to trade will adversely affect the efficiency of the organization. Sometimes it can be detrimental to the very work­ing of the organization.
In Railways traditionally, many items relating to steam locos were manufactured. Additionally, small items were also manufactured. With modernization and change over to traction from steam loco to diesel and electric tractions, many items of steam loco have become obsolete and production of such items have become redundant.
The decision to make or buy an item depends various parameters like the availability in market, relative economy, sophistication of the items required and whether the item is a safety item for the rolling stock and so on.
It would be simpler to make such a decision 'ab-initio' in a new organization, but in a running and ongoing organization like the Railways where considerable infrastructure has already been built for manufac­ture of various stores items in the workshops, the decision to off-load item to trade has to be taken considering many factors.
QUALITY CONSIDERATION:
1. Vital components requiring close quality control.
2. No manufacturer is making the desired quality.
3. Specialized item requiring extensive investment.
4. Inspection standards are very high.
5. Specification may be too exacting.
6. Maintenance of desired quality standard in a finished product.
7. Producer is likely to be particularly skilled in manufacture of the item.
8. Primary or secondary interest.
9. Patent of production method used by the supplier.
10. Flexibility for changing the quality -characteristics of the compo­nent.
COST CONSIDERATION:
1. Is it cheap to buy or make based on the BREAK EVEN ANALYSIS. If the cost of production does not commensurate the break even cost the item has to be procured and vice versa.
2. Current level of production in the workshop. -^
3. Utilization of facilities already exists in the workshop.
4. Is the choice between expansion of facilities and outside purchase?
5. Probable future course of prices.
6. Return on investment.

CONSIDERATION:
Demand is large and stable, it may be decided to manufacture the item and vice versa.
SERVICE CONSIDERATION:
There must be steady supply of material and assurance of supply to mat the decision to buy.
In Southern Railway:
Based on a survey, there are about 2120 shop-manufactured items exist in Southern Railway. These are spread out in five major depots. The make or buy decision that has to be faced by the Railways sooner or later in view of the multi-various changes taking place within and outside Railways.
As discussed earlier, the steam loco components are shop-manufactured items. As steam loco requirement is gradually tapering down, it would be difficult to off-load the steam loco components from manufacture to trade from the point of view of locating dependable source of supply from trade. In any case, after another three to four years, there will not be any demand for steam loco component, when the steam locos are completely phased out»
In view of the PROJECT UNIGAUGE and modernization of Railway workshops under COFMOW (Central Organization For Modernization of Workshops) there is a possibility to off-load certain items, which can be easily procured at the trade with the guaranteed standard and at the cheaper rate
FOR PROCUREMENT:
1. When there is no space, equipment, time and non-availability of skills in the Railway workshops, the item can be procured.
2. When Railway workshops lack certain special facilities for the manufacture of the component, the same should be procured from the trade.
3. Railway Administration due to scarcity of funds may decide to invest in more profitable works.
4. The present day installed capacity of workshops may be utilized to other components more profitably.
5. Railway workshops can concentrate on other production.
6. When there is a need for technology and equipments, it is profitable to buy.
7. When there are a number of suppliers for the specific. -tern, it is always better to buy rather than to make.
Traditionally, in Railways, the stores inventory is charged to stores suspense - a capital allocation. Hence, any huge balance in inventory would attract the payment of dividend to the General Revenue.
Board has already taken the above aspect of paying more re divi ken various measures to reduce the huge inventory. De-stock items valuing more than Rs.50000/- is a step in this Similarly, Divisionalization of stores is another step to reduce heavy inventory. Further, the off-loading certain items from the shop floor to trade would reduce the heavy inventory.
Such off-loading would also help the Railways to employ the surplus labour profitably elsewhere. Finally, in the days of resource paucity and economic spending, the off-loading can definitely contribute to reduction in the working expenditure, which has been time and again emphasized by various committees and the second Corporate Plan 1985-2000.

MAKE OR BUY DECISION
1. QUALITY CONSIDERATION:
Ø Vital components requiring close quality control
Ø No manufacturer is making the desired quality
Ø Specialized item requiring extensive initial investment
Ø Specifications may be too exacting
Ø Inspection standards are very rigid
Ø Maintenance of a desired quality standard in a finished product
Ø Producer is likely to be particularly skilled in manufacturing the item
Ø Primary or secondary interest
Ø Patent of production method used by the supplier
Ø Flexibility for changing the quality – characteristics of the part
2. COST CONSIDERATION:
Ø Is it cheap to make or buy
Ø Current level of production in the plant
Ø Utilization of facilities
Ø Is the choice between expansion of facilities and outside purchase
Ø Probable future course of prices
Ø Return on investment
Ø Economics of scale – the transportation cost of raw material may be too high compared to the component
3. QUANTITY CONSIDERATION:
Ø large and stable demand – decision to make
Ø quantity too small to attract supplies decision to buy
Ø closer co –ordination of quality produced and quantity required – decision to buy
4. SERVICE CONSIDERATION:
Ø assurance of supply
Ø flexibility when purchased – buy and make
MAKE
1. excess plant capacity availability
2. the item may be closely allied to some of the other components made by the company
3. making will facilitate control of parts changes inventories and deliveries
4. the component maybe too big and difficult to transport
5. confidentiality
6. monopoly and unreliable sources
7. suppliers are totally unreliable
8. integrity of the plant operator
9. maintenance
10. Tax consideration

BUY:
space , equipment, time and or skills non availability for manufacture
absence of facilities for manufacturer
better opportunities for more profitable investment
The existing faculties are capable of being used more profitably to make other components.
Make or buy decision in the railways:
The decision to make or buy any item depends on various parameters like availability in market, relative economy, sophistication of the items required and whether the item is a safety item for the rolling stock and so on. It would have been simpler to take such a decision abinitio in a new organization but in a running and ongoing organization like the railways where considerable infrastructure has already been built for manufacture of various stores items in the workshops, the decision to off load item to trade has to be taken considering all the above mentioned factors.
In railways traditionally many items relating to steam locos were manufactured. Additionally small items were also manufactured. With modernization and change over from steam locos to diesel- electric and electric locos, many items of steam loco have been obsolete and production of such items has become redundant.
Based on survey, the steam loco components some 2120 shop manufactured items existed in this railway. These were spread out in major five depots. As steam loco requirement was gradually tapering down, it would be difficult to off-load the steam loco components from manufacture to trade from the point of view of locating dependable source of supply from trade. Finally items were earmarked for off loading. Such off loading would help railways to employ the surplus labor profitably elsewhere. In the long run, such off loading would benefit railways immensely to down size the labor in view of the financial crisis.
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D XAVIER GNANARAJ
SR SO / W COMPUTER

COMPARISON OF THE TWO SCHEMES:
THE CHITTARANJAN PATTERN
1.Introduced on workshops in 1958
2.It is individual based incentive scheme
3.The time saved by the worker in performing a work against the allowed time forms the basis for the incentive earned. The maximum time that can be saved to be eligible for incentive is 50% to the prescribed time for an activity.
4. Idle time can be booked on more than one reason like non-availability of tools, machine break down, power cut etc
5.Over time is allowed
6.Quality factors are not taken into consideration
7.There are no penalizing factors for the worker in earning the incentive for the poor quality of work, absence from the workplace,
8.There are no equalizing factors for different types of work.

THE TIRUPATHI SCHEME
1.Introduced on workshops in January 2002
2.It is group based incentive scheme.
3. It is directly linked to out turn of the group in eGSCN units, and the attendance factors. The maximum % of additional eGSCN coaches that can be turned out to be eligible for incentive earning is 50%
4.Idle time can booked only on account of power failure more than an hour. (In CRS it seldom happens as power cut is managed by generators.
5. There is no provision for over time in Tirupathi scheme as approved by the Railway board. (Even if Over Time is allowed as per RITES Study, it works against the incentive earning capacity of the worker)
6.Quality factors are taken into consideration and these if factors are adverse they act negative on the incentive earned by the worker.
7.The important feature of this scheme is that it takes into consideration of quality of work, the time spent away from the work place; the rectification man-hours etc and these can act against the amount of incentive earned by the worker.
8.All types of coachwork are converted into eGSCN in case of coach works and in case of the turning of wheels the common factor is ICF wheel sets.

THE WORKING OF THE SCHEME:
The theoretical aspects have been discussed regarding the scheme in the earlier paragraphs. The actual working details of the scheme will be discussed in the following paragraphs:
Prior to the introduction of the incentive scheme CRS had been turning out 40coaches(80 Four wheeler Units) per month on an average i.e., 480 coaches per year. This situation is termed as 100R condition in RITES Study.
The Railway Board approved incentive scheme is designed with an incentive earning of 20% i.e., 120R. With the existing staff strength of 1030 the number of eGSCN that are to be turned out to get 120R incentive is fixed at 50 equated GSCN coaches per month. If less than this target is achieved, it will not be eligible for incentive earning. However the upper ceiling limit of incentive as given in Para 4.02 of Mechanical Code is applicable. i.e., more than 150R incentive is not allowed. As per this, the maximum additional out turn in eGSCN eligible for incentive would be restricted to 50%.

As per RITES study, the Industrial Engineering Department (IED) is made responsible for the calculation of incentive and preparing the bill. While preparing the bill the IED is supplied with inputs from Time office like the total clocked in man -hours of the various groups, and the absentee statements. And IED collects details of various other data directly from the workshop like the rectification man - hours, the out turn. The bill prepared is sent to Accounts Department along with the relevant documents for vetting. The vetted bill is clubbed with the regular salary bill and payment is arranged after due internal check by the Accounts department.

CRS has performed to its optimum and the out turn has increased by 20 coaches per month on an average. Individual shops have achieved maximum out turn to the tune of around150R in terms of eGSCN. As a result the incentive payment was also at 150R.

The average incentive earned by workers of various scales:(In Rs, for Carriage Fitting shop for 3 months from Jan to March 2002 would give an idea of the amount of incentive payment to various grades of staff.
Contributed by V.A.PADMANABHAM, SAO/SF/SCRly



Concept of Cost Consciousness –Cost consciousness in planning and designing INVENTORY CONTROL.
Cost Consciousness is an important concept to be aware of and to be understood by all the persons in any organization carrying out any economic activity and with an aim to improving productivity and profitability of the organization. Indian Railways, being a large commercial undertaking as well as a Government Organization, the importance of Cost Consciousness need not be emphasized. As Staff of Railways, we are expected to know the financial position of Indian Railways

Indian Railways-A Brief Background on Financial position:
It will be interested to know that Indian Railways used to carry around 89% of the freight traffic generated by the economy, which has now declined to the level of around 40% leading to stringent financial position. In addition to falling share of traffic, the budgetary support the IR from Central Government in the form of Capital is drastically reduced from 75% in V Plan to around 18% now, thus forcing IR to resort to market borrowings which entail payment of lease charges which constitute 8% of working expenses of Railways. You are also expected to know as to how each rupee of earnings and expenses are met with by Railways. It is interesting to know that 65% of earnings are from freight and 28% come from passenger traffic and balance from Sundry and others. Similarly, Staff wages and allowances constitute nearly 37% of working expenses, 11% towards pension, 8% for lease charges etc., It is to be noted that IR could not pay Dividend to General Revenues for the last couple of years. In addition, Railways are in need of around Rs.15000 Cr for meeting replacement of Over aged Bridges, Track and Plant and Machinery etc., This is the background in which IR is functioning which makes it obligatory for all of us to be Cost Conscious and aware of all the steps to reduce costs and improve efficiency and Productivity leading to better operating surplus adequate enough to place IR on sound financial footing.

As you are aware, there was a committee on Identification of profit Centers and Cost centers and introduction of Activity Based Costing System on Indian Railways headed by Sri Hasan Iqbal, Retired FC (Rlys). The Committee pointed out that many of us do not know the cost of carrying out different activities on Railways. A simple thing like an Electrical Foreman of a Division does not know the electrical bill of his Division, an IOW in charge of water works does not know the amount of water bill paid to Municipality. Similarly, every one takes pride in the Operating Department for a slight increase in loading by a few million tones but no one knows at what cost the increase has been achieved. The Committee pointed out that the Cost consciousness is absolutely lacking at every level especially at Supervisory. Besides knowing the physical targets of his performance, one is expected to know the cost inputs that go into the achieving these physical targets.

SOME BASIC CONCEPTS OF COSTING
1. Cost: It can be defined as the amount of resource spent to produce a commodity or a service. The cost can be in the form of money spent on men, materials and miscellaneous.
2. Elements of Cost: These are classified according to Function like Production, Administrative, Selling and Distribution costs or according to Behaviour such as Fixed Costs, Variable Costs and Semi Variable Costs.
3. Cost Sheet: This is prepared duly segregating the costs as;
Prime Cost comprising of Direct Materials, Direct Labour and Direct Materials. Overheads comprising of Factory overhead, administration overhead and Selling and Distribution Overheads
The total of above two gives cost of production divided by no. of units produced gives unit cost of production.
If the estimated profit is added to Cost of Production, selling Price is arrived at.
4. Activity Based Costing: As envisaged in the Committee on Identification of Profit Center and Cost Center on IR, we are expected to know how to work out Activity wise costs under each Supervisor under certain parameters. This will help inter unit comparison.

Cost Consciousness in Planning and Designing Inventory Control:
Inventory Control encompasses all activities of Material Management right from planning/assessment of quantity of materials required to receipt, inspection, storage, issue, accountal etc of materials covering all phases. Indian Railways are adopting ABC Analysis as a method of Inventory Control as you will be amazed to know that IR is having more than 100 Stores Depots stacking around one-lakh items. The value of purchase made by IR is estimated around Rs.9000 Cr in a Year

ABC analysis means that all materials are categorized into three categories viz ‘A’ category comprises of high value items constituting a major segment of total value of materials say around 70% whereas they account for only small percentage of number of items. If these materials are controlled at PHOD level right from approving of AACs to the end, it means that 70% of material budget is controlled leading to better economies to the system. ‘B’ category consists of medium class of materials around 20% of the total value, which can be controlled by SA grade officers whereas ‘C’ category comprises materials constituting about 10% of total value of materials but comprise about 70% of numbers whose control can be left to lower levels of administration. The other aspects of cost concepts are Cost of stores- as more stores balance involves locking up capital.

Fixation of Minimum, Maximum and re-order levels
Fixing Economic Order Quantity
Factors like Obsolescence, thefts, pilferages, shrinkages, and evaporation etc, Proximity to the source of supply. Items available on Rate Contracts. Lead time involved for each kind of material. Storage costs and space constraints and security problems. Finally the cost of Inventory Control should not be disproportionate to the likely befits that may accrue to the organization.
All five ‘R’ s of Material Management should be given due consideration viz. Right Quantity, Right Price, Right Source, Right Time and Right Quality. A better Inventory Control will lead to better Inventory Management giving better inventory turn over Ratio which is the final index of material management function of any organization especially a big organization like Indian Railways. It will be heartening to note with satisfaction that IR has been achieving better Inventory Turn over Ratio over years.
Advantages of observing Cost Consciousness:
The following advantages can be derived by the organization if the individuals operating in the organization observe cost consciousness while discharging their duties.
(a)The cost of activity will be kept at minimum.
(b)Savings derived by observance of cost consciousness can be better utilized in other areas where resources are required.
(c)Wastages of all kinds can be reduced.
(d)Financial discipline thus set in will keep the managers to constantly think of achieving higher and higher levels of economy in expenditure.
(e)Cost of products will become more competitive leading to better operating surplus resulting in generation of more internal resources for meeting capital expenditure without resorting to market borrowings at high rates of interest.
(f)Organization can quote competitive prices, which help to corner greater market share.
(g)Workers and shareholders can derive better financial benefits and better return on capital employed. This will lead to harmonious industrial relations and boosts investor confidence.
(h)Economy of the country will improve leading to overall economic development.
Contributed by V.A.PADMANABHAM, SAO/SF/SCRly




COST OF REPAIRS IN RAILWAY WORKSHOP UNIT: VARIATION IN COST
Introduction: In railways, costing as a management device to assess as well as to control costs is of very recent phenomenon. Nowadays, costing has become very central to the concept of management. Costing is being applied to the railway workshops in order to achieve the unit cost of various phases of workshop activity. Primarily the cost of POH is to be identified in order to improve the efficiency and productivity of the railway workshops.
COST ACCOUNTING AND ITS SALIENT FEATURES: Cost accounting serves the following functions:
1) Identify unit of cost-of product, department or service
2) Arrive at the net result – cost, profit or loss- for each item of operation, production or service.
3) Help valuation of stocks and work-in-process by each type, category and component.
4) Help construction of budget and budgetary control.
5) Develop control systems through analysis and exceptions.
6) Present and interpret data for management planning, decision-making and control.
7) Suggest criteria for choice among alternatives of investment, output, products and markets.
INHERENT DIFFERENCE: The present day nine zonal railways are created out of the previous company railways. Hence, the differences persist even today in the unit cost of various phases of workshop activity. Obviously in the cost of repairs to rolling stock also the variation persist despite best efforts taken. Therefore, the historical realities should be taken into consideration for identifying the unit cost variation.
RAILWAYS AND COSTING: The days of transport monopoly enjoyed by the railways are over. So is the unstained support the railways received from the General revenue. The railways have been asked to generate their own internal funds to meet the various projects besides, the regular maintenance work. Generate.
THE GROUND REALITIES: At present the repair cost obtained is on average basis only. No scientific system of costing being adopted for cost collection and cost control purposes. According to the existing system, the expenditure relating to each repair activity is accumulated from April to March the previous year and the same is divided by the total number of units turned out for the same period.
There seem to be wide variation in the unit repair cost of various railways or for similar activity. As said earlier the repair costs are only the average cost which gives/provides no room for any comparison between unit costs of various railways. There is no standard or estimate prevalent for making the variance analysis to find the reason for high cost or otherwise.
The Railway Board has sometimes-ago fixed standard man-hours for POH activities without giving the details of material requirement etc. The man-hour content is more or less the same in the different workshop. The unit cost of labour may/different due to/be:
1) Variation in Labour Mix.
2) Variation in the Labour cost (HRA, CCA etc)
3) Variation in the efficiency of the Workshops.
4) The total number of operation carried out in repair activities – P O H.
VARIATION IN LABOUR MIX: The workshop labour is categorized into unskilled, semiskilled, skilled I, II and III, mistry, charge man, foreman, Deputy Shop Superintendent, Shop Superintendent Etc. Such variety is existing in all the railway workshops. However, the same number of labour may not be used in all workshops for a job. Naturally, such difference would show wide fluctuations in the unit cost.
VARIATION IN THE LABOUR COST: In the cost analysis study made by the Railway Staff College, in 1990, it was found that the P O H costs for Wagons on Eastern Railway, Northern Railway, North East Frontier Railway, South Central Railway and Western Railway have been more or less same for the period from 1984 to 1988. However, the study found that the cost is the highest in Southern Railway followed by North Eastern Railway. Similarly, the cost is high in Central and South Eastern Railways.
VARIATION IN THE EFFICIENCY OF THE WORKSHOPS: The present day Railway workshops are handed down to the various zonal railways from the erstwhile company railways. Hence the efficiency of the technology and machinery in these shops vary and the resultant cost variation. The efforts to streamline the efficiency of the railway workshops have culminated in the formation of COFMOW – Central Organization for Modernization of Workshops. However, the historical reasons for the difference in the unit cost will persist until the modernization reaches the farthest corner of the workshops.
OTHER VARIATION FACTORS: The workshop infrastructure facilities, the environment, availability of tools etc, will also cause the variation in the unit cost.
REASONS FOR THE VARIATION IN MATERIAL: The reasons for difference in material cost is due to the following reasons,
1) Policy of the Stores/Material Management
2) Proximity to the market or source of supply.
3) Distance and the transport cost.
4) Storage facilities.
SUGGESTIONS:
1) Introduction of Job or Batch costing system in the workshops will improve the cost control measures.
2) Fixing a proper standard, preferably by the Railway Board in respect of materials to be supplied and man-hours to be utilized for each repair activity.
3) Cost Centres/ Profits Centre approach may be introduced for repair activities for better cost control purposes.
4) Introduction of Zero Based Budgeting and estimating the cost of repair will improve the Inter-Railway comparison of costs.
5) Latest and effective tools and sophisticated machinery may be provided to all workshops.
CONCLUSION: In the days to come, due to economic liberalization and privatization, the railways’ cost responsibility has increased manifold. The dwindling support from the General Revenue may altogether stop at a time. Hence, it is high time; the railways have evolved a scientific costing system to watch as well as to control the costs. Such reduction in the working expenditure will improve the adverse Operating Ratio. The over all efficiency will be toned up due to constant watch on the costs. The corporate objective of reduction in the tariff cost can be achieved with the cost control. Finally, the efficient and cheaper transport would contribute to the welfare of the people of India and the Country.
D XAVIER GNANARAJ
SR SO / W COMPUTER

REVISED COSTING IN RAILWAY WORKSHOPS – LW/PER FOR AC LOCOs
Ø Wide variation in the existing cost procedure
Ø Due to non-standardization of work like POH, IOH
Ø Revised Costing
v Solves the existing deficiencies and gives additional information
v Based on the Cost Center approach Cf: Hassan Iqbal Recommendations
SALIENT FEATURES:
1. applicable to AC locos
2. average unit cost of locos class wise
3. trifurcation of activities
a. Normal OH or Group A
b. Unscheduled – Group B
c. High value items – Group C
4. Average unit cost of OH for each identified major assembly
5. average unit cost of all major repair activities- power/control cables
6. average unit cost of major modification
7. cost of high value items individual loco cost center wise
8. proforma on cost- for managerial information
9. Cost of capital spares use din individual locos
METHODOLOGY:
Work orders to have eight digits
1. Railway No, 2 & 3 shop No, 4 Demand No, 5 Minor Head,6,7&8 Cost Center No
5
1
2
6
5
5
0
2


No change in the existing work orders for on cost
Define POH and IOH
Cost center is a section or a group where specific repair activities are under taken- identified by a cost center No Eg. Transformer and oil cooling, bogie and brake rigging, wheel axle and axle box.
RCS trifurcates the repair cost in to 1 Basic, 2 variable, 3 high value items.
RCS requires a Monthly Statement of Non Stock items cost center wise.
RCS insists on the generation of Section Outturn statements based on Cost Center wise separately for A,B & C.
In the outturn for A, B & C loco wise input to be shown.
Total quantum of work done in a particular cost center in terms of standard unit/assembly corresponding to WAM 4
Non-POH costs should not be included in the POH out turn when it is undertaken in the POH shops. Separate outturn for non-POH activities for completed work to be prepared.
Pre determined ratios is on time study of collection of costs cost center wise for each repair / overhaul
Establishment of separate costing cell in accounts office to work out the unit cost of repairs of each assembly/modification under section officer (A) and submission of accounts to Books section – a technical supervisor to be nominated for co coordinating with the costing cell
The RCS insist on collection of expenses under cost center wise for labor and stores
No changes in the workshop general register for the RCs
No change in the existing outturn statement
The average unit cost of a cost center is arrived at by dividing the total expenditure of the cost center by its equated output.
Loco repair cost is arrived by adding the costs under groups A,B & C
Distribution of SOC, GOC and POC shall continue as at present
D XAVIER GNANARAJ
SR SO / W COMPUTER
WORKSHOP MANUFACTURING SUSPENSE ACCOUNT
The WMS is a suspense account under capital S 7200. It incorporates on the debit side the various inputs such as labour, materials, direct and indirect miscellaneous expenses incurred in a workshop. On the credit side, the out turn statement allocated to the various heads of accounts namely, capital, DRF, DF, OLWR, Capital Stores Suspense , Ordinary revenue, Deposit works etc is indicated.
The difference between the debits and credits indicate the work in progress and job completed but the out turn is transferred to the appropriate head of account, is treated as closing balance of the WM suspense account. The WMS is operated under demand No 16 along with the works expenditure chargeable to Capital, DF, SRF, OLWR and Stores Suspense.
In order to arrive at the net requirement of funds for WMS account out turn chargeable to Capital, DF,SRF, OLWR and Stores Suspense total credits of WMS under these heads is deducted from the total debits and credits of the WMS budget estimate.
Review: The WMS account is reviewed to see the progress of out turn vis-à-vis the inputs. The budgetary controls are exercised to see that the closing balance is to the barest minimum representing only the work in progress. The following specific points are looked into:

1) whether materials and stores have been drawn disproportionate to the requirement of the job on hand
2) Whether the progress of manufacture of stores parts / components rational and there are no undue delays or abandonment of the jobs half way resulting in inefficient debits to WMS accounts.
3) Whether timely adjustments of debits to the various final heads of account have been carried out monthly as per the procedures.
4) whether there is abnormal delay in closing the Work Order for specific jobs
5) Whether the responding accounts officers have accepted the workshop debits in time.
6) Whether timely revision of on cost charges have been conducted to ensure that the costs are absorbed by the jobs.
7) in respect of parts/components manufactured for Stores Depot, the documentation is completed and there is no delay in giving credits to WMS accounts
The monthly reviews should indicate whether the closing balance as budgeted would be achieved. In order to control the suspense account the review should ensure:
1. that there are no inefficient and large accumulations of debits under manufacture suspense work orders
2. that there are no drawl of costly metals and materials over and above the requirement
3. that the direct purchases are kept to the minimum requirement and
4. That the under and over charges manufacture and on cost are adjusted to the corresponding revenue heads by conducting timely review.
D XAVIER GNANARAJ
SR SO / W COMPUTER
OUT TURN STATEMENT
The compilation of workshop out turn statement is necessary for charging the total expenditure incurred in the workshops, to final accounts heads concerned. In order to have systematic accounting of the expenditure incurred on the various activities in the workshop, the out turn statement is compiled.
Unless the total expenditure incurred towards labour, stores and on cost charges booked to the various work orders, during a month , is summarized, it is not practicable to arrive at the total cost under each final head of accounts. Besides certain items of expenditure are directly transferable to the final heads of accounts and in other cases the acceptance by the parties is required before transferring the debit.
The total expenditure for the month, in respect of each work order under labour, stores and on cost charges is extracted in the in the workshop general register. The out turn statement is compiled from the workshop general register for the transaction of the month. The opening balance is carried forward from the closing balance of the previous month.
The out turn statement is prepared in two parts:
Out turn statement Part I
Out turn statement Part II
Shows the total outlay separately
Against each work order
Adjustable during the
Month.
Includes open line, capital and
DRF works capital stores suspense
Manufacture items, open line works
Revenue works, works done for
Other divisions, other railways
And deposit works.
The amounts appearing in Part I
Are those which are adjustable
In the same month’s accounts
Shows the outlay on works-in-
Progress and completed works
Awaiting acceptance by the
Parties ordering such works
Includes the classes of expenditure for which bills have to be prepared and got accepted by the parties concerned, before carrying out the adjustment. In all these cases, the amounts remain outstanding in part II until such time the bills are accepted. On receipt of the acceptance, the amounts are sown in part I and necessary debits are raised against the concerned accounts officer
The closing balance under Part II out turn statement is review with the help of the individual work orders. It is ensured that the amounts are not kept for unduly long periods. The inefficient balances have to be viewed and their clearance effected from the workshop manufacture suspense account.
D XAVIER GNANARAJ
SR SO / W COMPUTER

COSTING SYSTEM IN WORKSHOPS
The object of costing is
1. to compare the man-hours and the costs of similar articles manufactured form time to time in the workshop and finding out the reason for variation in labour hours and cost:
2. to compare the cost of articles manufactured in one workshop with those manufactured in other workshops or with the market price of similar articles: and
3. to determine issue-prices of components manufactured in workshops for issue to stores for stocking purpose to meet the demands of workshops at the time of repair of Rolling Stock.
Principle documents employed for costing purpose are:
Route Card: It is an authority for the shop to manufacture of components /assembly, for which it is issued. It is adrema printed and issued by Production Control to the shop through Progress Office and thereafter it travels with the job till its completion when it is sent to Accounts Office for completing the cost sheet.
Job Card / Squad Summary Card: For each operation included in the Route Card, Job Cards / Squad Summary Cards are issued adrema printed (by Progress Office) on which time taken is recorded with the help of Time Clocks and direct labour hours spent on the job determined. Direct labour cost is arrived at by multiplying the time taken with average hourly rate of the category. Both direct labour hours and indirect labour cost is posted in the cost sheets. In addition, the incentive bonus earned by workers is also posted form the job card.
Material Requisition: It is an authority for the shop supervisor to draw materials as specified there in accordance with the route card and is issued adrema printed by the production control to the shop through the progress office. It is valued by the stores accounts office based on book rate and forwarded to the workshop accounts office where it is made use of for posting direct material cost in the cost sheet.
Material Tag: It is adrema printed by Production Control and issued to shops through progress office. It remains with the material till the components/ assembly is returned to stores when it is valued at the pre-determined rate by stores accounts office and sent to workshop accounts office in support of advice of credit. In the workshop accounts office it is posted in the cost sheet to determine the extent to which the price list rate needs revision.
Advice Note of Returned Stores: It is used for return of scarp or surplus materials to stores and getting credit therefrom for posting in the cost sheet.
Foundry Out Turn Statement: It is used for ascertaining and posting in the cost sheet, the cost of ferrous and non-ferrous castings.
Cost Sheet: It is a document issued by the Production Control in respect of job for which cost is to be determined. It covers the whole field of record of productive activity and is used to determine cost per unit.
Work Manager’s Cost Card: It is posted from cost sheet and is used for comparison of cost from time to time and from workshop to workshop etc.
D XAVIER GNANARAJ
SR SO / W COMPUTER


WORK ORDER SYSTEM
A work order is an order issued by the production control organization of a workshop to undertake the work mentioned therein. A route card issued to the shop, serves as an authority to start the work. Work orders are distinguished by Nos allotted to them. The analysis of workshop expenditure is carried out with the help of this system of work orders.

Any system of work orders in use in a workshop should, therefore, provide for

the minimum analysis is required by the detailed classification of Capital and Revenue expenditure;
the further analysis required or necessitated, say
i. By the orders of Railway Board as issued from time to time,
ii. ii. by the need for the inter departmental adjustments having to be made or for ascertaining the amount to be recovered from outside parties on specific works,
iii. by the need for ascertaining the cost of individual operations and jobs so that waste may be avoided and expenditure may be adequately and efficiently controlled
The essential features of a good work order system are
1. conformity with the accounts classification so that the correct allocation of expenditure incurred in a workshop in the required details is aimed
2. elasticity which would allow of the increased analysis that may be required in certain cases for ascertaining and controlling the expenditure on individual operation and job(job costing)
Work orders are of two kinds: Job work orders; Standing work orders.
Job orders: The job orders are the work orders the currency of which is determined by the accomplishment of the special purposes for which they have been brought in to existence. Such job orders are really sub – divisions of standing work orders. Job orders are classified under the two groups viz. 1. sub-divisions of standing work orders (sundry work orders) e.g.

No
Details
WO No
Code No
1
Work done for military dept

501
2
Work done for irrigation dept

502
3
Work done for civil dept

503
4
Work done for foreign railway

504
5
Work done for home line employees

505
6
Work done for out siders

506
Manufacturing orders for stores: It is essential that a close working alliance is maintained between the workshop stores depot and the main progress office and that manufacture are not held up due to shortage of stock. Stock recoupments are made from two sources: 1. from open market when components, which cannot be manufactured in shop; 2. articles manufactured in the shops for recoupment of stores. In the stores items manufactured in workshop, half-yearly series are issued. Job orders are issued under these series in ascertaining cost of manufacture whenever needed.
Standing work orders: Standing work orders are further classified in to the following, to record the expenditure of different classification on works executed in the workshop.
1. Revenue Standing Work Orders: These follow the standing classification and re numbered in a manner so as to conform to the revenue accounts classification and remains unchanged from year to year.
2. On Cost Standing Work Orders: These are meant for booking al on cost expenditure incurred in workshop for careful analysis, effective control of such expenditure and its correct distribution. This is further divided in to shop on cost work orders and general on cost work order.
3. Standing Work Orders For Manufacture: These are kept for process shops such as saw mill shop, foundry etc
4. Grouping Work Order: These are issued for booking expenditure on all works of value upto Rs each for which booking of expenditure individually is not considered necessary.
5. Inter Departmental and Inter Divisional or District Work Orders: These constitute another class of standing work orders, all works from department or division being indicated by a distinctive number.
Points to be seen:
1. before a work order is issued, it is seen that (1) for works to be undertaken for Govt where charges are to be adjusted through transfer transactions, formal acceptance of the estimated cost has been obtained before a work order is issued.
2. for work to be undertaken for railway employees, it must be seen that the sanction of CME has been deposited, ( Not at present)
3. for works to be done of outsiders, it should be seen that
i. the work has been sanctioned by a competent authority
ii. the estimated cost has been deposited
iii. the outsider agrees to in the event of the estimate being exceeded , to pay the excess before the delivery of the work is effected.
N B: no formal work order need be issued for regular and repair and maintenance work orders other than those for which estimates are prepared.
D XAVIER GNANARAJ
SR SO / W COMPUTER
LIFE CYCLE COSTING
According to Berliner and Brimson (1988) companies operating in an advanced manufacturing environment are finding that about 90 % of a product’s life cycle cost is determined by decisions made early in the cycle. In many industries, a large fraction of the life cycle costs consist costs incurred on product design, prototyping, programming, process design, and equipment acquisition. This has created a need to ensure that the lightest controls are at the design stage, because most costs are committed or ‘locked in’ at this point of time. Management accounting systems should therefore be developed that aid the planning and control of product life cycle costs and monitor spending and commitments at the early stages of a product’s life cycle.
Traditionally, management accounting systems have focused primarily on reporting costs at the physical production stage of the cycle, and costs have not been accumulated over the entire life cycle. Many companies use a life cycle approach for planning and budgeting new products, but these models are rarely integrated into existing management accounting reporting systems. It is important that feedback information be provided that compares actual with planned outcomes.




Life cycle costing
DECLINING
SATURATION
ASCENDING SALES
ABANDONEMENT
REPACKING & NEW PRODUCT
ZENITH
LAUNCH EXPENSES
INITIAL RESEARCH













D XAVIER GNANARAJ
SR SO / W COMPUTER







ANNUAL ROLLING STOCK PROGRAMMME
Annual rolling stock programme is a follow up of the Five Year Plans, formulated for the Indian Railways in respect of acquisition of rolling stock. Para 1501.W
The planning process for the Five Years Plan is detailed out in Chapter VIII, under the heading of "Operational and Financial Planning" of the Indian Railway Administration and Finance—An Introduc­tion. It may be summarised as under :—
(i) Appointment of Steering Groups consisting of representatives of various economic Ministries and the Planning Commission by the Plann­ing Commission well in advance of the com­mencement of Five Year Plan for covering various facets of the plan.
(ii) Setting up of Working Groups by each Ministry under aegis of Planning Commission. The Ministry of Railways is generally the conve­nors of the Working Groups on—
(a) Freight traffic projections:
(b) Passenger traffic projections; and
(c) Formulation of Railway Development Pro­grammes.
(iii) The Working Groups after taking into consi­deration the total freight and passenger traffic likely to be carried in plan period on the basis of sectoral analysis, fix the traffic targets and then examine it in exercising to determine the approximate requirement of the rolling stock in respect of wagons, carriages and locomo­tives.
(iv) The draft plan thus prepared is taken up for detailed discussion in the Planning Commis­sion and adjustment made depending upon the financial resources available. The final plan thus emerged is subject to periodical reviews based on the growth of expected traffic. This review is conducted under the aegis of Plann­ing Commission jointly with the economic Ministries and shortfalls and fluctuations are analysed and necessary alterations made in the plan.
(v) The five Year Plan so formulated is implement­ed through action oriented annual plan. A draft annual plan is discussed in a meeting with the Planning Commission at which the Finance Ministry is also associated. Para 1502.W
Provisions for new rolling stock in the annual rolling stock programme is made atleast three years in advance in the case of locomotives and two years advance in the case of wagons and carriages to match the requirement in each year of the plan period and to provide lead time in arranging supply of imported and indigenous items of components for manufacturing of rolling stock. The provisions required to be made in the rolling stock programme on replacement account is arrived at by projecting the likely condemnation in the period for which the plan is made. Para 1503. W
Preparation of Draft Programme.—The Chief Operating Superintendent should therefore prepare a programme showing the additions and renewals of locomotives, carriages and wagons, which he considers necessary to be carried out during the second succeed­ing financial year in order to meet transportation re­quirements, adequately giving his reasons for each item in the programme, and submit this to the Chief Mechanical Engineer, for including any items of addi­tions and/or renewals of boilers before finally sub­mitting it to the General Manager for his approval. For the purpose of allocation of the estimated costs between Capital and Depreciation Reserve Fund, in the case of renewals, particulars should be given of cost. tractive effort, floor area, carrying capacity. &c, in respect of both the old and the new stock Para 1504.W
Reductions in the Authorized Rolling stock—
Each Railway Administration is authorized by the Railway Board to keep a specified number of rolling stock, which is referred to as authorized stock. Para 1505.W
Certain rules should be observed in regard to the proposals for reduction in the authorized stock
Rolling stock Additions—"Renewals' of rolling-stock should always take precedence of "Addi­tions”, and no new rolling-stock should be obtained as an addition, if the actual stock of such class in existence on the line is below the authorized stock for the railway of that class. When additions to rolling stock are made under classes in respect of which there has previously been a reduction of authorized stock, the new stock should be considered to have replaced the stock previously reduced. For this pur­pose the list of "Stock reduced from the authorized list' should be carefully examined and if it is found that similar items of stock have been reduced from the authorized list in the past, the cost of the (corres­ponding) additional stock now provided should be allocated in such a manner that debit to Capital on account of such stock does not exceed the amount that would have been debited thereto, had the stock in question been considered, in the first instance, as 're­placed' and not as 'reduced' from the authorised list. PARA 1506.W see annexure A
Justification for additional locomotives-Additional locomotives are considered justified irres­pective of stock only if it can be shown that the exist­ing locomotive stock is fully implied, that the anticipat­ed entries in traffic, warrants the provisions of addi­tional engine power and that justification exists for the provision of such power on capital account. 1510.
Renewals of rolling stock.—As the rolling-stock programme for a year is prepared 15 to 18 months before its commencement, it has necessarily to be based on rough estimates of the traffic requirements of a later period and on the condition of rolling stock, as it might be expected to be more than a year later. A detailed examination of each individual item of rolling stock included in the programme as to whether it should be repaired or replaced is thus impracticable. The renewals of rolling stock are therefore determined primarily with reference to the general present condi­tion of the class of units proposal to be replaced or renewed. The suitability of the existing locomotives or vehicles to meet modem requirements and the expen­diture which will be incurred in carrying out further repairs to the locomotives, vehicles or wagons if they are to be kept in service, are important considerations that have to be taken into account before renewal of an individual item of stock is preferred to its recondi­tioning or repair.
The average economic lives that may be assumed for the different kinds of rolling stock for the purpose of arriving at decisions of this nature are given below. It should be clearly understood that the average life is not the maximum economic life and with good maintenance, stock can be kept in service for many years longer. 1511.
Itemized Rolling Stock Pogramme.—The itemized Rolling Stock Programme is meant to cater for complete rolling stock, including locomotives, coaches, wagons, cranes, tower wagons, etc.. Capital spares for rolling stock costing more than the limit specified for each item, which are to be manufactur­ed/procured by the Zonal Railways themselves. This programme also caters to major modifications to be carried out on rolling stock, which primarily changes their class, i.e.. conversion of coaches into Accident Relief Trains, conversion of electric Loco excitrons to silicon rectifiers etc., and those modifications which are the chargeable to Development Railway Fund. 1512.
A detailed justification may be prepared for every New Acquisition. Each item proposed in the Programme should be vetted by the FA & CAO of the Railway and his verbatim comments indicated against each item. 1514.
Justification for Additional Coaching Stock— 1517.
The additional requirements of coaching stock should be considered under each of the following nine classes. and additional coaching stock may be provided only if it can be shown that the estimated requirements, under each of the classes mentioned above, are in excess of the authorized stock of that class:—
(1) Upper class, excluding tourist, res­taurant and inspection cars.
(2) Lower class.
(3) Brake-vans, luggage vans, postal vans.
(4) Miscellaneous stock for public tra­ffic.
(5) Miscellaneous stock for depart­mental use, including inspection cars, inspectors vans, store vans, accident trains, & c.
(6) Tourist and restaurant cars.
(7) Military cars.
(8) Special stock • • • Sentinel coaches.
Trailers.
Rail motors
(9) Electric stock (multiple units) :—
(a) Upper
(b) Lower
Justification for Additional Goods Stock—1519.
For the purpose of estimating additional requirements,, goods stock should be considered under the following two divisions:—
(1) General Service Wagons;
(2) Special Type Wagons.
Itemised Rolling Stock Programme. 1524. —The Rolling Stock Programme is meant to cater for com­plete rolling stock including locos, coaches, wagons, cranes tower wagons, etc., and also capital spares for rolling stock costing more than the limit specified for each item. The programme also caters to major modifications to be carried out on rolling stock which primarily changes their class i.e. conversion of coaches into Accident Relief Trains, conversion of electric loco excitrons to silicon rectifiers, etc.
It is necessary that the Railways ensure that only such items coming within the scope of RSP mentioned above which are correctly chargeable to RSP are pro­posed for inclusion in-the rolling stock programme. Items, which are normally, repair items and do not in­volve any modernization/conversion of the stock and normally chargeable to revenue and those, which do not affect the category of the rolling stock, or class should not be proposed under RSP. Some of the such items which have been sent by the Railways include re-cabling of locos, wheels for locos, reharnessing, re­habilitation, provision of minor equipment like revis­ed couplers, re-winding of armatures not falling with­in the ambit of capital spares. The items should nor­mally be carried out by the Railway under a special revenue estimate and where necessary.
The itemised Rolling Stock Programme should be prepared in the following Proforma separately for Works already sanctioned by the Board (Programmed Deliveries) and for New Works proposed to be taken up (New Acquisitions). It should be submitted in a book form on the same pattern as the Works Pro­gramme (and not in loose sheets) with continuous num­bering separately for Programmed Deliveries and Mew Acquisitions. The itemised programme should reach the Railway Board by 15 September of the year, which precedes the year to which the programme relates. Twelve copies of the programme should be submitted. 1525.








Form No. 1525
............................Railway
ITEMISED ROLLING STOCK PROGRAMME FOR 1996-97
(Figures in thousands of rupees)
Item No.
Page Nos. of detailed justi­fication and other references
Name of work
Alloca-
tion
Anti-­ cipated cost
Outlay expected upto end of 1985-86
Outlay
proposed for1986-
87
Balance to com­ plete work
Remarks
1
2
3
4
5
6
7
8
9


Programmed Deliveries








Items for which provision has been made in a previous budget.









Locomotives







Item No. of 19-19 RSP
Providing One Power Pack for YDM4 Diesel Loco








Total Locomotives






1
2
3
4
5
6
7
8
9


Carriages







Item No. of
19-19 RSP
Building 16 Bogie water cumcrew vans








Total Carriage
………
…….






Wagons







Item No. of
19-19 RSP
Modification of 410 ‘MBYG’ Brake-vans








Total Wagons








Total programmed Deliveries






............................Railway
ITEMISED ROLLING STOCK PROGRAMME FOR 1986-87
(Figures in thousands of rupees)
Item No.
Page Nos. of detailed justi­fication and other references
Name of work
Alloca-
tion
Anti-­ cipated cost
Outlay expected upto end of 1985-86
Outlay
proposed for1986-
87
Balance to com­ plete work
Remarks
1
2
3
4
5
6
7
8
9


New Acquisition








Items for which provision has not been made in a previous budget








Locomotives








Capitalised Diesel Spares for YDM3/YDM Loco








Total Locomotives








Carriages








Building 8 Bogie coaches for VG ART trains








Total Carriages








Wagons








Underframes for LPG Tank Barrels








Total Wagons








Total New Aquisitions








Total Rolling Stock






1527. Appendices.—The following appendices should accompany the programme, the information being shown separately by gauges.

(I)
Stock statement

(II)
(a) (a) Renewal statement
(b) (b) Deferred renewal statements
Locomotives, coaching stock, goods stock, separately by gauges.
(III)
Replaced stock statement
(IV)
Justification for additional stock required for new lines.
(V)
(a) (a) Utilisation and programme statement of steam locomotives.
(b) (b) Locomotives distribution by K.Ms groups.
(c) (c) Locomotives age statement.

(V)
(a) Programme of coaching stock.

(V)
(b) Schedule of coaching stock requirements.

(V)
(c) Age statement of coaching stock.

(V)
(d) Inspection carriages.

(V)
(a) Goods stock utilization sta­tement.

(V)
(b) Goods stock age statement.

(VI)
Programme statement for loco-motives, coaching and seeds stock.

(VlI)
Progress statement.



Annexure A Types or Class of Rolling Stock
Class
Particulars
1.
Locomotives, steam including "Spare boilers" (paragraph 1516). internal combustion and bat­tery.
2.
Locomotives, electric
3.
Locomotive Diesel.
4.
Coaching stock (suburban, motor units).
5.
Coaching stock, self-propelled.
6.
Motor Troilers.
7.
Saloons.
8.
Tourist cars and Restaurant cars.
9.
Coaching stock, upper class, including all vehi­cles in which air-conditioned or first class, ac­commodation is provided.
10.
Coaching stock, including brake, luggage and postal in which second or third class accommo­dation is provided.
11.
Other coaching vehicles including brake, lug­gage, postal, motor, fruit, fish, poultry, duck, vans and horse-boxes in which* no passenger accommodation is provided.
12.
Officers' carriages.
13.
Service coaching vehicles, including stores vans, tool vans, breakdown vans and subordinate inspection carriages.
14.
General service goods wagons, including open covered, low-sided, rail and timber trucks.
15.
Other goods vehicles, including cattle wagons.
16.
Explosive vans, oil and petrol tank wagons.
17.
Well wagons.
18.
Goods brake-vans.
19.
Service wagons, including ballast hopper, crane support crane and weighbridge testing wagons and water tank wagons.

Annexure B
Average Economic Lives Assumed for the different Kinds of Rolling-Stock
Steam Locomotives
40 years
Boilers
20 years
Electric Locomotives
35 years
Diesel Hydraulic/Electric Locos—
(a)
With Original Power Pack
30 Years
(b)
With renewed Power Pack
40 Years
(c)
Power Pack for diesel Hydraulic/Electric Locos
20 Years

Battery Locomotives
25 years
Rail Cars— Steam
20 years
Rail Cars — Internal Combustion
20 years
Electric Multiple Unit Stock—
(i) Motor Coaches
25 years
(ii) Trailer Coaches
25 years
Coaching Vehicles
30 years
Goods Vehicles
40 years
Bogie Inspection Carriages
40 years
Bogie Tourist Cars
40 years
Bogie Restaurant Cars
40 years
Wooden Vehicles or Wagons with wooden under-frames
15 years
Railway Officers and subordinate's Inspection Carriages (Four or six-wheelers)
30 years
Rest Vans, Pay Clerk's Vans and all other vehicles and wagons
30 years
Locomotives— Internal Combustion
30 years
Ferries
35 years