Cost and Management Accounting · Service Costing

Transport Service Costing for CA Intermediate

Updated 4 October 2026 · Fact-checked

Transport service costing finds the cost of running vehicles and expresses it per unit of service: per km, per passenger-km or per tonne-km. You group costs into standing (fixed) charges, maintenance charges and running charges, total them, then divide by the correct composite unit.

Understand Transport Service Costing

A transport operator sells movement, not a product. There is no stock and no material consumed in a factory sense. So cost is collected for a period, usually a month or a year, and divided by the service units produced.

Costs are split into three groups. Standing (fixed) charges do not change with distance: road tax, insurance, licence, garage rent, driver and conductor salary, and administration. Maintenance charges cover repairs, tyres, overhauls and are often semi-variable. Running charges vary with distance: fuel, oil, and sometimes driver wages if paid per km.

The cost unit depends on the operator. A taxi or fleet may use cost per km. A bus uses passenger-km. A goods carrier uses tonne-km. These are composite units because they combine two measures: how many carried and how far.

The key skill is working out the correct denominator. Capacity is not the same as actual load. Many questions give a seating capacity and an occupancy percentage, or a truck that runs loaded one way and empty on return. You must use the effective figures, not the capacity, unless the question says otherwise.

Key rules to remember

Total operating cost: Total cost = Standing charges + Maintenance charges + Running charges; Prepare the sheet for the period given, then convert all items to that same period.
Cost per km: Cost per km = Total operating cost ÷ Total km run; Use km actually run by the vehicle, including empty running.
Passenger-km (absolute): Absolute passenger-km = Σ (Passengers carried on each trip × Distance of that trip); Sum this trip by trip when loads vary. Use it when actual passengers are given.
Passenger-km (occupancy basis): Passenger-km on occupancy basis = Seating capacity × Occupancy % × Total km run, or Seating capacity × Km per day × Days × Occupancy %; Use when occupancy is given as a percentage of capacity. Do not multiply by days again if total km is already given. This is not the same as commercial passenger-km, which is the average of passengers at each stage × total distance. Follow the basis the question names.
Tonne-km (absolute): Absolute tonne-km = Σ (Tonnes carried × Distance of each leg); Empty return legs add zero tonne-km but their km still add cost.
Tonne-km (commercial): Commercial tonne-km = Average load × Total distance travelled. Average load = (Σ tonnes carried at each stage) ÷ number of stages, with stages of equal distance. For loaded-out, empty-back: average load = (Load + 0) ÷ 2; Absolute uses each leg's own load × its own distance. Commercial averages the loads first, then multiplies by total distance. Example with equal stages: stage 1 is 10 tonnes over 100 km and stage 2 is 30 tonnes over 100 km. Absolute = 10 × 100 + 30 × 100 = 4,000. Commercial = (10 + 30) ÷ 2 × 200 = 20 × 200 = 4,000. For a simple loaded-out, empty-back trip both also agree: 10 tonnes, 200 km each way gives 10 × 200 = 2,000 (absolute) and (10 ÷ 2) × 400 = 2,000 (commercial). When stage distances are unequal, the two figures can differ, because commercial is a convention that averages the loads without weighting them by distance. Use the commercial basis only when the question names it, and follow the basis the question names.
Cost per passenger-km or tonne-km: Cost per unit = Total operating cost ÷ Total passenger-km (or tonne-km); Fare = Cost per unit + profit per unit, where profit per unit is computed on the stated base (on takings: fare = cost per unit ÷ (1 − x%)).
Fare with profit on takings: If profit is x% of takings: Takings = Cost ÷ (1 − x%); If profit is x% of cost: Takings = Cost × (1 + x%).

How to solve Transport Service Costing questions

Use the same method for any transport costing question. It protects step marks even if one figure goes wrong.

1Read the required output first: cost per km, per passenger-km, per tonne-km, or a fare. Note the period asked.
2Fix the period. Convert yearly items to monthly or the reverse, for example annual insurance ÷ 12, or a vehicle cost ÷ life for depreciation.
3Compute the service units: total km, effective days, passenger-km or tonne-km. Check working days, trips per day and round trips.
4Classify each cost into standing, maintenance and running charges. Show the three headings in a proper cost sheet.
5Compute each item with working notes: depreciation, fuel at km per litre, tyres at cost ÷ life in km, driver and conductor wages.
6Total each group, then the grand total, and divide by the correct unit to get cost per unit.
7If a fare or profit is asked, add profit as instructed (on cost or on takings), then divide by passenger-km or tonne-km.
8State the final answer clearly with units and a one-line interpretation if useful.

Quickest way: Fast route for MCQs and a clean written format

When to use it: Use under time pressure for MCQs and for the 70-mark descriptive questions on service costing.

For MCQs, find the denominator first. Most wrong options come from using capacity instead of actual load, or km instead of passenger-km.
Check the period. Options often differ by a factor of 12 or by missing the monthly conversion of annual items.
Eliminate options that treat fuel as fixed or road tax as variable.
For written answers, draw a three-column cost sheet: particulars, total cost, cost per km or per unit. Examiners award marks line by line.
Put a working note below the sheet for depreciation, tyres, fuel and passenger-km. Label each note and refer to it in the sheet.
Write the final line as: cost per passenger-km = ₹ ___ ; fare = ₹ ___. Underline it.

Common mistakes in Transport Service Costing

Using seating capacity instead of passengers actually carried.
The capacity is the first number in the question and looks like the denominator.
Fix: Multiply capacity by occupancy % when occupancy is given. Use actual passengers if actual loads are given.
Ignoring empty return km in cost per km, or counting them in tonne-km.
Students treat the empty leg as no service, so ignore it everywhere.
Fix: Empty km add to km run and to cost. They add nothing to tonne-km. Keep the two counts separate.
Mixing annual and monthly figures.
Some items are given per year (insurance, tax) and others per month (wages).
Fix: Convert everything to the period asked before totalling. Write the conversion in the working note.
Classifying fuel, tyres or driver wages in the wrong group.
Students memorise lists but do not think about whether cost moves with distance.
Fix: Ask: does it change with km? If yes, it is running or maintenance. If it is time-based, it is standing. Follow the question's own grouping where given.
Calculating profit on the wrong base.
Phrases like 'profit 20% on takings' and '20% on cost' look alike.
Fix: On takings: takings = cost ÷ 0.80. On cost: takings = cost × 1.20. Underline the base word in the question.
Counting trips wrongly for round trips.
A 'round trip' of 20 km each way is 40 km, but students use 20.
Fix: Write the km for one full cycle first, then multiply by number of cycles and days.

Worked examples

Example 1

A bus has 40 seats and runs 100 km daily on a route for 25 days in a month. Average occupancy is 75%. Monthly costs: depreciation ₹12,000 (calculated on a time basis), insurance ₹3,000, driver and conductor salary ₹30,000, diesel ₹60,000, repairs and maintenance ₹10,000. Prepare the cost sheet and find cost per km and cost per passenger-km.

Show the solution

Total km per month = 100 × 25 = 2,500 km.
Passenger-km = 40 seats × 75% × 2,500 km = 30 × 2,500 = 75,000 passenger-km.
Depreciation is calculated on a time basis, so it does not change with km. Treat it as a standing charge.
Standing charges = 12,000 + 3,000 + 30,000 = ₹45,000.
Maintenance charges = ₹10,000.
Running charges (diesel) = ₹60,000.
Total cost = 45,000 + 10,000 + 60,000 = ₹1,15,000.
Cost per km = 1,15,000 ÷ 2,500 = ₹46.
Cost per passenger-km = 1,15,000 ÷ 75,000 = ₹1.5333, about ₹1.53.

Answer: Total monthly cost ₹1,15,000; cost per km ₹46; cost per passenger-km about ₹1.53.

Example 2

A truck carries goods from A to B, 200 km away, with a load of 10 tonnes, and returns empty. It makes 1 round trip a day for 20 days in a month. Monthly costs: standing charges ₹24,000, maintenance ₹8,000, running charges ₹1,20,000. Find cost per km and cost per tonne-km (absolute basis). Then find the cost per tonne-km if the operator wants a profit of 25% on takings.

Show the solution

Km per round trip = 200 + 200 = 400 km.
Total km per month = 400 × 20 = 8,000 km.
Total cost = 24,000 + 8,000 + 1,20,000 = ₹1,52,000.
Cost per km = 1,52,000 ÷ 8,000 = ₹19.
Absolute tonne-km = 10 tonnes × 200 km × 20 trips = 40,000 tonne-km. The empty return gives zero.
Cost per tonne-km = 1,52,000 ÷ 40,000 = ₹3.80.
Profit is 25% on takings, so cost is 75% of takings. Takings = 1,52,000 ÷ 0.75 = ₹2,02,666.67.
Rate per tonne-km = 2,02,666.67 ÷ 40,000 = ₹5.07 approximately (equivalently 3.80 ÷ 0.75 = 5.0667).

Answer: Cost per km ₹19; cost per tonne-km ₹3.80; rate to earn 25% profit on takings about ₹5.07 per tonne-km.

Exam tips

Draw the three-heading cost sheet every time, even when the question does not ask for the format. It earns presentation and step marks.
Show working notes for km, passenger-km and tonne-km. A wrong final figure still earns marks for correct method.
Read for hidden data: spare buses, days under repair, a round trip versus a one-way run, and part-year costs.
In MCQs, test each option against the denominator. Most traps are in the unit, not the cost total.
Round only at the last step, and state the unit with every answer.

Practice questions from Service Costing

Transport 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.

Transport Service Costing: frequently asked questions

What is the cost unit for a bus and for a goods truck?

A bus normally uses passenger-km and a goods truck uses tonne-km. Both are composite units because they combine quantity carried with distance. Cost per km is used when the vehicle type is general or the load is not the focus.

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

Absolute tonne-km is the sum of tonnes × distance for each leg. Commercial tonne-km is average load × total distance travelled, where average load is the simple average of the stage loads (the sum of tonnes carried at each stage ÷ number of stages), which suits stages of equal distance. For equal stages of 100 km carrying 10 tonnes and 30 tonnes, absolute is 10 × 100 + 30 × 100 = 4,000 and commercial is 20 × 200 = 4,000. If stage distances are unequal, the two can differ, so follow the question's instruction on which basis to use.

Which costs are standing charges in transport costing?

Standing charges are time-based costs that do not change with km run. Typical items are road tax, insurance, licence fees, garage rent, administration and fixed wages of driver and conductor. Depreciation is often included here when it is calculated on a time basis.

How do I find the fare per passenger?

Find total cost, add the required profit on the stated base, and divide by total passenger-km. This gives the fare per passenger-km. Multiply by the trip distance for a fare on a given journey.