Updated: Jul 4, 2023
THE INTRODUCTION:
The company in question is a JV of India’s leading oil marketing and gas distribution companies. The company’s product portfolio includes Compressed Natural Gas (CNG), catering to more than ~14 Lacs CNG vehicles and Piped Natural Gas (PNG), catering to more than ~21 Lacs domestic PNG customers.
THE PROBLEM:
Compressors and dispensers are the principal equipment used in a CNG station for filling CNG in vehicle tanks. The operational costs of these types of equipment are primarily maintenance-related. Therefore, the company in question needs assistance in designing a framework for strategic decision-making to enable accurate gauging of maintenance costs of in–house vs. outsourced compressors and dispensers.
In addition, given the company’s huge customer base, the availability of stations during working hours is paramount. This renders the correct computation of costs a challenging process compounded by the additional burden of resource requirements during the maintenance of compressors and dispensers.
THE SOLUTION:
To evaluate the cost of maintenance, the compressors and dispensers are initially categorised into in–house and outsourced categories. These outsourced compressors/ dispensers are further subcategorised into AMC (machines under warranty) and CAMC (after the machines’ warranty has expired).
The costs so ascertained are then allocated to the different makes/ models of the compressors/dispensers based on capacity, which is the most reasonable and scientific basis, using the cause-and-effect principle in accordance with the relevant Cost Accounting Standards issued by the Institute of Cost Accountants of India. This trend analysis was performed and studied on three years of cost data. Identification of cost elements and the cost computation of compressors/ dispensers’ category
specific are as follows:
THE RESULTS:
Weighted average cost/Equipment/Month analysis was observed for all three years. It was concluded that equipment’s in–house maintenance activity is more economical compared to equipment’s outsourced CAMC maintenance activity. Another observation was that following the procurement of the new equipment (Outsourced AMC category), the maintenance activity was at a minimal cost given the machines are new, under warranty, and require minimum maintenance.
Weighted Average Cost/Equipment/Month (3 Years) in relative terms
FREQUENTLY ASKED QUESTIONS:
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SANKALP WADHWA
Partner, Chandra Wadhwa & Co. (Cost Accountants) | B.Com, FCMA, ACA, DISA | Certified SAP-CO Consultant | Executive Program on Management and Finance (IIM, Ahmedabad)
Address: 1305 & 1306, Vijaya Building, 17, Barakhamba Road, New Delhi - 110001, India Mail: sankalp.wadhwa@cwcindia.in
Tel: +91-8800018190, +91-7503703599.
Website: www.cwcindia.in