Cost and Management Accounting · Service Costing

Hospital, Hotel and Other Service Costing for CA Intermediate

Updated 4 October 2026 · Fact-checked

Service costing finds the cost of an intangible service by dividing total cost by a suitable composite cost unit, such as cost per patient-day, room-day or meal. You prepare a cost statement with fixed and variable costs, find the total, compute the number of units, then divide.

Understand Hospital, Hotel and Other Service Costing

Service costing is used where the output is a service, not a product. Service output cannot be stored, so there is no inventory of finished service. Some consumables may still be held in stock, but the cost you compute is for the service delivered in the period.

The hard part is choosing the cost unit. A hospital sells care, not one thing, so the unit is a bed-day, a patient-day or an operation. A hotel sells rooms, so the unit is a room-day. A canteen sells meals or cups of tea. A school uses cost per student. A power company uses cost per kWh. An IT service may use cost per transaction, per ticket or per hour.

Many service units are composite units: they combine two measures. Tonne-km and passenger-km in transport are examples. Bed-days, patient-days and room-days are also composite units, because each combines a bed or room with time (for example, a bed × days).

Rooms or beds × days alone gives the available units (capacity). Multiplying that by occupancy % gives the occupied units, such as occupied room-days or bed-days. These are the units actually sold, and they are the units you divide the total cost by.

The difference between transport costing and hospital costing is mainly the cost unit and the cost classification. In transport you use running costs, maintenance costs and standing charges per vehicle and divide by tonne-km or passenger-km. In a hospital you group costs by service department, such as wards, ICU and operation theatre, and divide by bed-days or patient-days. The cost statement method is the same.

Exam questions give you a list of expenses and ask for total cost, cost per unit and often a selling rate with a margin. Many also ask for the rate to charge per day to earn a stated profit on cost or on revenue.

Key rules to remember

Total units (days-based): Units = Number of rooms or beds × Days in period × Occupancy %; Rooms or beds × days alone gives available units. Multiplying by occupancy gives occupied units (units sold). Use the days stated in the question.
Cost per unit: Cost per unit = Total cost of the period ÷ Total units of service; Total cost includes both fixed and variable costs for the period.
Rate with profit on cost: Charge per unit = Cost per unit × (1 + Profit % on cost); Use when profit is stated as a percentage of cost.
Rate with profit on revenue: Charge per unit = Cost per unit ÷ (1 − Profit % on revenue); Use when profit is stated as a percentage of sales or charge.
Cost per unit with fixed and variable costs: Cost per unit = Variable cost per unit + Fixed cost ÷ Units; When occupancy changes, the variable cost per unit stays the same, but the fixed cost is spread over the new number of units. Use this to find the new cost per unit.
Power cost per kWh: Cost per kWh = Total cost ÷ Units sold (kWh); Units sold = units generated − units lost or used internally.

How to solve Hospital, Hotel and Other Service Costing questions

Use this method for any hospital, hotel, canteen, school, power or IT service question.

1Read the question and identify the cost unit asked for, such as patient-day, room-day, meal or kWh.
2Compute the total units of service from capacity, days and occupancy. Convert annual or monthly figures to the same period as the costs.
3List every cost and convert each to the period of the statement. Divide annual costs by 12 if the question asks for a month. Spread items like depreciation over the period.
4Classify costs into variable, semi-variable and fixed, or into headings such as staff, consumables, utilities and depreciation. Handle any split cost as the question directs.
5Find the total cost and divide by the total units to get the cost per unit.
6If a charge rate is asked, add the stated profit margin on cost or on revenue. Check which one is given.
7Show the answer in a neat cost statement with workings below it, and state the unit in the final answer.

Quickest way: Fast cost statement for service costing

When to use it: Use when the question lists many expenses and asks for cost per unit or a charge rate in a short time.

For MCQs, find the units first, then the total cost, then divide. Eliminate options whose unit count is clearly wrong, for example those that ignore occupancy.
Check that all costs are for the same period before dividing. Mismatch of annual and monthly figures is the most common trap.
For written answers, draw a three-column statement with the heading, the working and the amount. Step marks come from each cost line and from the unit calculation.
Write the formula for units and the cost per unit before substituting. Then compute the charge with profit using the correct base.
Finish with a one-line answer with the unit, such as ₹ per room-day.

Common mistakes in Hospital, Hotel and Other Service Costing

Ignoring occupancy when counting units
Students multiply rooms by days and forget that only part of the capacity is sold.
Fix: Always multiply capacity by days by occupancy %. Write the units line first in your working.
Mixing annual and monthly figures
Some costs are given per year and others per month, and the student adds them directly.
Fix: Convert every cost to the period of the statement before totalling.
Using profit on cost when profit on revenue is given
Students multiply by 1 plus the percentage without reading the base.
Fix: If profit is on revenue, divide cost by (1 − percentage). For example, 20% on revenue means the charge is cost ÷ 0.80.
Choosing the wrong cost unit
Students copy the transport unit, such as tonne-km, into a hospital or hotel question.
Fix: Match the unit to what the customer buys: bed-day for a ward, room-day for a hotel, meal for a canteen, kWh for power.
Treating non-cash items wrongly
Students leave out depreciation because no cash is paid, or include notional items such as interest on capital without being asked.
Fix: Include depreciation as a cost. Include other notional items only if the question tells you to.

Worked examples

Example 1

A hotel has 50 rooms and runs for 30 days in a month. Average occupancy is 60%. Monthly costs are: staff ₹2,70,000, room consumables ₹1,20,000, electricity ₹90,000 and depreciation ₹1,50,000. Find the cost per room-day and the room rent per day if the hotel wants a profit of 20% on cost.

Show the solution

Room-days available = 50 × 30 = 1,500.
Room-days sold = 1,500 × 60% = 900.
Total cost = 2,70,000 + 1,20,000 + 90,000 + 1,50,000 = ₹6,30,000.
Cost per room-day = 6,30,000 ÷ 900 = ₹700.
Profit at 20% on cost = 700 × 20% = ₹140.
Rent per day = 700 + 140 = ₹840.

Answer: Cost per occupied room-day is ₹700 and the room rent per day is ₹840.

Example 2

A hospital ward has 40 beds and works 30 days in a month at 75% occupancy. Monthly costs: nursing staff ₹1,80,000, medicines and consumables ₹2,70,000, food ₹90,000 and ward overheads ₹1,20,000. Find the cost per bed-day. What daily charge is needed to earn 25% profit on revenue?

Show the solution

Bed-days available = 40 × 30 = 1,200.
Bed-days used = 1,200 × 75% = 900.
Total cost = 1,80,000 + 2,70,000 + 90,000 + 1,20,000 = ₹6,60,000.
Cost per bed-day = 6,60,000 ÷ 900 = ₹733.33 (exactly 733.33...).
Charge with 25% profit on revenue = 733.33 ÷ (1 − 0.25) = 733.33 ÷ 0.75 = ₹977.78 (exactly 977.77...).
Check: the charge should equal cost × 4/3. 733.33... × 4/3 = 977.77..., which rounds to ₹977.78.
Profit per bed-day using unrounded figures = 977.77... − 733.33... = 244.44..., which is ₹244.44. This is exactly 25% of the unrounded charge 977.77.... Subtracting the two rounded figures (977.78 − 733.33) gives 244.45, a rounding difference of ₹0.01.

Answer: Cost per bed-day is about ₹733.33, the charge per bed-day is about ₹977.78, and the profit is about ₹244.44 per bed-day (25% of the charge).

Exam tips

Practical questions in RTP and MTP style often ask for a cost statement. Present it in a table-like list with each cost head and its amount so each line earns marks.
Read the base of profit carefully. Profit on cost and profit on revenue give different charges.
State the number of units explicitly. Examiners usually give a mark for the correct unit calculation even if a later figure is wrong.
Keep the unit in the answer, such as ₹ per bed-day. Many MCQs offer options with the right number but a wrong basis.
Revise transport costing with this topic. Compare the cost units and the way standing and running charges are handled so you can answer short theory questions.

Practice questions from Service Costing

Hospital, Hotel and Other Service Costing in other exams

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

CMA IntermediateHospital and Healthcare Costing

Hospital, Hotel and Other Service Costing: frequently asked questions

What is the cost unit in hospital costing?

The common cost units are patient-day or bed-day for wards, and per operation or per test for specific services. The question usually names the unit. If not, choose the one that matches what the patient is charged for.

How do I calculate the cost per room-day in a hotel?

Find room-days sold as rooms × days × occupancy. Then divide the total cost for the period by those room-days. Add the required profit if a tariff is asked.

What is the difference between transport costing and hospital costing?

Both use a cost statement, but the cost units and cost heads differ. Transport uses units like tonne-km or passenger-km and splits costs into running, maintenance and standing charges. Hospital costing uses bed-days or patient-days and groups costs by service area.

Do I divide by available units or used units?

Divide by the units actually sold or used, which means after applying occupancy. Dividing by capacity gives a lower cost and is usually wrong unless the question says otherwise.