Cost Accounting · Operating Costing - Transport, Hotel and Healthcare

Transport Costing and Operating Cost Sheet Format

Updated 10 October 2026 · Fact-checked

Transport costing is operating costing for vehicles. You group costs into standing charges, maintenance charges and running charges, total them for the period, then divide by the service units, such as km, tonne-km or passenger-km, to get cost per unit. Add profit to find the fare or rate.

Understand Transport Costing and Cost Sheet

Transport costing is a form of operating costing. The business sells a service, not a product. So there is no stock, and the cost unit is a unit of service, such as a kilometre run, a tonne carried over a kilometre, or a passenger carried over a kilometre.

Costs are grouped into three heads. Standing (fixed) charges do not change with distance run: road tax, insurance, garage rent, licence fees, driver's and conductor's salary if fixed, and administration costs. Maintenance charges cover repairs, overhauls, tyres and routine servicing. They are semi-variable, and in questions are often given per km or as a lump sum for the period. Running (variable) charges vary with distance: fuel, lubricants, and depreciation when it is based on km run. Wages paid on a km or trip basis also sit here.

The cost unit depends on the service. A goods lorry uses tonne-km. A bus uses passenger-km. A taxi often uses km. Tonne-km and passenger-km are called composite units, because they combine two measures (load or passengers, and distance). A plain km is a simple unit.

Tonne-km can be computed on two bases: absolute tonne-km and commercial tonne-km. Absolute tonne-km is the sum of load × distance over each leg or trip, so a leg with no load adds nothing. Commercial tonne-km is the average load × total distance travelled, so the return legs are included through the average load. The question tells you which basis to use. For a bus, passenger-km uses the seating capacity multiplied by the km run and by the occupancy rate, unless actual passengers are given.

Once the total cost is split into the three heads, divide by the total service units. Add the profit margin on cost or on takings to get the fare or rate the business should charge.

Key rules to remember

Total operating cost: Standing charges + Maintenance charges + Running charges; Prepare the cost sheet for the same period, usually a month or a year, for all heads.
Absolute tonne-km: Σ (Load in tonnes × Distance in km) for each leg or trip; Add the figures for all legs or trips. An empty return leg has zero load, so it adds nothing to absolute tonne-km.
Commercial tonne-km: Average load × Total km run; Average load = sum of the loads on all legs ÷ number of legs. For a full load out and an empty return over equal distances, the average load is half the full load, and the total km run includes the return.
Passenger-km: Seats × Occupancy % × Km run (or Σ passengers × km); Use the actual passengers if given. Otherwise use capacity at the stated occupancy.
Cost per unit: Total operating cost ÷ Total service units; Units are km, tonne-km or passenger-km, as the question asks.
Depreciation per km: (Cost of vehicle − Residual value) ÷ Estimated life in km; Treat as a running charge if it is based on km. Treat as a standing charge if it is time-based, such as per year.
Fare or rate with profit: Cost per unit + Profit per unit; If profit is a % of takings, cost is (100 − %) of takings. Then takings = cost ÷ (1 − profit rate).

How to solve Transport Costing and Cost Sheet questions

Use the same pattern for any transport costing question. It keeps your layout clean and earns step marks.

1Read the question and mark the required unit: km, tonne-km or passenger-km. Note the period.
2Compute the service units first. Work out km run, loads and occupancy, and show the tonne-km or passenger-km working.
3Convert all costs to the same period. Annual costs for a monthly sheet need dividing by 12, and a per-km figure needs multiplying by km.
4Classify every item into standing, maintenance or running charges. Work out depreciation and any per-km rates.
5Draw the operating cost sheet with three heads, a subtotal for each and a grand total.
6Divide the total by the service units to get cost per unit. Show the division clearly.
7If asked, add profit to find the fare or rate. Check whether profit is on cost or on takings.
8Write one line of interpretation if the question asks for comment, for example which head dominates.

Quickest way: Three-column cost sheet shortcut

When to use it: Use this when the question has many cost items and you have little time.

Write the service units at the top. Find them first, so you do not forget them.
Make three groups under S, M and R. Tick each item as you read it.
Put the per-unit figures beside each total in the same sheet.
Total each group once, then add. Divide by the units for cost per unit.
For a fare, find the total cost and add the profit. Then divide the sum by the units.

Common mistakes in Transport Costing and Cost Sheet

Mixing up the absolute and commercial tonne-km bases, especially for empty return legs.
The student applies one rule to every question, such as always multiplying load by total km run, or always ignoring the return trip.
Fix: Absolute tonne-km counts only the loaded legs (load × distance for each leg). Under commercial tonne-km the empty legs lower the average load, so you use the total km run. The question tells you which basis to use.
Putting depreciation in the wrong head.
The student assumes depreciation is always a fixed cost.
Fix: Check the basis. If it is per km, use running charges. If it is an annual amount, use standing charges.
Not converting the period.
The question gives annual insurance and tax but asks for a monthly sheet.
Fix: Divide every annual item by 12 first. Mark the conversions on the sheet.
Using seating capacity for passenger-km without applying occupancy.
The student ignores the occupancy percentage in the question.
Fix: Passenger-km = seats × occupancy % × km run, for the correct number of days or trips.
Calculating profit on cost when the question gives profit on takings.
Words like 'profit of 20%' are read quickly.
Fix: If profit is 20% of takings, cost is 80% of takings. Takings = cost ÷ 0.80.
Showing only a final figure, without the three-head cost sheet.
The student calculates on rough paper and writes only the answer.
Fix: Always present the sheet with S, M and R subtotals. Marks go to each step.

Worked examples

Example 1

A lorry with a capacity of 10 tonnes runs between two towns 200 km apart. It carries a full load from A to B and returns empty. In a month it makes 20 round trips. Costs for the month: driver's wages ₹18,000, insurance and tax ₹4,000, garage rent ₹2,000 (all standing); repairs ₹6,000 (maintenance); diesel and oil ₹36,000, depreciation ₹9,000 (running). Prepare the operating cost sheet and find the cost per tonne-km (absolute basis).

Show the solution

Absolute tonne-km: loaded leg only. 10 tonnes × 200 km × 20 trips = 40,000 tonne-km.
Standing charges: wages ₹18,000 + insurance and tax ₹4,000 + garage rent ₹2,000 = ₹24,000.
Maintenance charges: repairs ₹6,000.
Running charges: diesel and oil ₹36,000 + depreciation ₹9,000 = ₹45,000.
Total cost = ₹24,000 + ₹6,000 + ₹45,000 = ₹75,000.
Cost per tonne-km = ₹75,000 ÷ 40,000 = ₹1.875.

Answer: Total cost ₹75,000. Cost per tonne-km = ₹1.875 (about ₹1.88).

Example 2

A bus has 40 seats and runs 100 km each day for 25 days in a month, with 80% average occupancy. Monthly costs: salaries of driver and conductor ₹30,000, road tax and insurance ₹5,000, garage rent ₹5,000 (standing); repairs and tyres ₹10,000 (maintenance); diesel ₹40,000 and depreciation ₹10,000 (running). Find the cost per passenger-km and the fare per passenger-km if profit is 20% of takings.

Show the solution

Km run = 100 × 25 = 2,500 km.
Passenger-km = 40 seats × 80% × 2,500 km = 32 × 2,500 = 80,000.
Standing charges = ₹30,000 + ₹5,000 + ₹5,000 = ₹40,000.
Maintenance charges = ₹10,000.
Running charges = ₹40,000 + ₹10,000 = ₹50,000.
Total cost = ₹40,000 + ₹10,000 + ₹50,000 = ₹1,00,000.
Cost per passenger-km = ₹1,00,000 ÷ 80,000 = ₹1.25.
Profit is 20% of takings, so cost is 80% of takings. Takings = ₹1,00,000 ÷ 0.80 = ₹1,25,000.
Fare per passenger-km = ₹1,25,000 ÷ 80,000 = ₹1.5625.

Answer: Cost per passenger-km = ₹1.25. Fare per passenger-km = ₹1.5625 (about ₹1.56), giving a profit of ₹25,000 on takings of ₹1,25,000.

Exam tips

Always start with the service units. Many students lose the whole answer from a wrong tonne-km or passenger-km.
Draw the cost sheet with three clear heads and subtotals, even when the MCQ-style hint only asks for the rate.
In MCQs, check the period and the unit of the answer. Options are often built on the common errors: the wrong tonne-km basis, or annual costs not divided by 12.
If the question gives a different load on the outward and return legs, compute each leg separately and add them.
Read the profit wording carefully: on cost, or on takings or sales.

Practice questions from Operating Costing - Transport, Hotel and Healthcare

Transport Costing and Cost Sheet in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Transport Costing and Cost Sheet: frequently asked questions

What are standing, running and maintenance charges in transport costing?

Standing charges are fixed costs like road tax, insurance, garage rent and fixed salaries. Maintenance charges cover repairs, tyres and servicing. Running charges vary with distance, such as fuel, oil and km-based depreciation.

What is the difference between absolute and commercial tonne-km?

Absolute tonne-km is the sum of load × distance over each leg or trip, so empty legs add nothing. Commercial tonne-km is the average load multiplied by the total distance travelled, including return legs. For a full load out and an empty return, the average load is half the full load.

Is depreciation a fixed or variable cost in transport costing?

It depends on the basis given. If depreciation is worked out on km run, treat it as a running charge. If it is an annual amount on a time basis, treat it as a standing charge.

How do I calculate cost per passenger-km?

Find passenger-km as seats × occupancy % × km run, or from actual passengers. Prepare the cost sheet and total the three heads. Divide the total cost by the passenger-km.