CMA Intermediate · Cost Accounting
Operating Costing: Transport, Hotel and Healthcare
Operating costing, also called service costing, finds the cost of providing a service rather than making a product. You pick a suitable cost unit, such as passenger-km, room-day or bed-day, collect costs under fixed and variable heads, then divide total cost by total units. Transport, hotels and hospitals are the usual cases.
What this chapter covers
Operating costing is the costing method for service businesses. Unlike job or process costing, there is no stock of goods. The service is used as it is produced. So the main problem is choosing the right cost unit and grouping costs so that cost per unit is meaningful.
This chapter covers three service settings. In transport, you work with units such as tonne-km, passenger-km, and with absolute and commercial units. In hotels, you work with room-days, occupancy and tariff. In hospitals, you work with bed-days, patient-days and department-wise costs, often with service departments sharing costs.
The chapter links to the rest of Cost Accounting through cost classification, cost sheets, fixed and variable behaviour, and overhead apportionment. If your cost sheet and overhead basics are firm, this chapter is mostly about applying them to a new cost unit. It also supports Management Accounting, where cost per unit feeds pricing and decisions.
Operating costing questions are usually numerical and follow a repeatable pattern: build a cost sheet, compute the cost unit, then find cost per unit or a charge rate with a profit margin. Once you know the unit calculations, these questions are very scoring, and a clear cost sheet earns step marks even if one figure is wrong. The chapter also suits MCQs, since a single calculation of passenger-km or occupancy can be tested in two marks. It is a good place to secure marks with modest effort.
Operating Costing - Transport, Hotel and Healthcare: topics in the order to study them
- 1Operating Costing: Meaning and FeaturesStart here to understand what a service cost unit is and how service costing differs from product costing.
- 2Transport Costing and Cost SheetThis sets the standard cost sheet layout with fixed, semi-variable and running costs that the other topics reuse.
- 3Transport Costing: Absolute and Commercial UnitsOnce the cost sheet is clear, learn how units are computed, since this is where most calculation errors occur.
- 4Hotel CostingIt applies the same cost sheet logic to room-days and occupancy, with a different unit calculation.
- 5Hospital and Healthcare CostingStudy this last because it adds departments and service cost allocation on top of the earlier ideas.
How to prepare Operating Costing - Transport, Hotel and Healthcare
Treat this chapter as one method repeated in three settings. Master the method first, then practise the unit calculations.
- Read the meaning and features and write down the usual cost unit for each service: transport, hotel, hospital, and a few others.
- Learn the standard transport cost sheet layout and sort costs into fixed or standing, maintenance and running heads.
- Practise computing absolute units separately from commercial units. Absolute tonne-km = sum of (load × distance) for each trip or leg. Commercial tonne-km = average load × total distance. Do this before attempting full problems.
- Solve hotel questions by first calculating room-days available and occupied, then cost per room-day and the tariff needed for a target profit.
- Solve hospital questions by listing departments, apportioning service department costs, then dividing by patient-days or bed-days.
- Always end with a final line: total cost, units, cost per unit and, if asked, charge rate. Time yourself on one full problem each sitting.
Common mistakes in Operating Costing - Transport, Hotel and Healthcare
Mixing up absolute and commercial units
Fix: Write the definition of each at the top of your working and check which one the question asks for.
Counting the wrong number of days or rooms in hotel questions
Fix: Always calculate available room-days first, then apply the occupancy percentage.
Treating all costs as variable
Fix: Convert annual or monthly fixed costs to the period in the question before building the cost sheet.
Ignoring the return journey
Fix: Costs cover all running, including empty returns. For units, follow the question's definition and include the return leg's load (zero if empty) in the average load and distance, unless told otherwise.
Mistaking profit on cost for profit on sales
Fix: Underline the profit basis, then compute the charge rate from it, for example sales = cost ÷ 0.8 for a 20% profit on sales.
Leaving the cost sheet without a final per-unit line
Fix: Finish every answer with cost per unit and the charge rate so the examiner can award the final marks.
Last-day revision: Operating Costing - Transport, Hotel and Healthcare
- Operating costing finds the cost of a service, with no stock of finished goods.
- Choose the cost unit to suit the service: passenger-km, tonne-km, room-day, bed-day.
- Group costs into fixed (standing), semi-variable and variable (running) heads.
- Absolute units add up each trip's load times distance.
- Commercial units = average load (the arithmetic mean of the loads carried on the trips) × total distance travelled.
- Check whether a question gives round trips; empty return legs affect the unit calculation.
- Hotel capacity is rooms times days in the period; occupancy is occupied room-days divided by available room-days.
- Charge rate equals cost per unit plus the required profit per unit.
- Hospital costs are divided between departments before finding cost per patient-day or bed-day.
- Show a cost sheet with totals and per-unit figures for step marks.
- Read the question for the profit as a percentage of cost or of sales before computing charges.
Operating Costing - Transport, Hotel and Healthcare practice questions
- A hospital has 40 beds, operating 25 days in a month. Occupied patient-days were 800. Fixed ward costs are Rs 2,00,000 and variable costs ar…
- In operating costing for a hotel, which of the following is a suitable composite cost unit?
- A goods carrier of Shree Logistics Ltd. travels 4,000 km in a month with a load of 5 tonnes on every trip and returns empty each time. Out o…
- A Pune hospital has 50 beds and runs for 30 days in a month. Beds occupied were 1,200 patient-days. Total ward costs for the month were Rs 3…
- A diagnostic centre in Chennai has fixed monthly costs of Rs 3,00,000 and variable cost of Rs 150 per test. It performs 2,000 tests in a mon…
- A truck runs from Nagpur to Raipur (200 km) carrying 10 tonnes, and returns empty. What is the absolute tonne-kilometre for the round trip?
- Which of the following costs in a hospital is best classified as a fixed cost of the in-patient ward service?
- Which item is best treated as a direct cost of a particular patient in a hospital's costing system?
Operating Costing - Transport, Hotel and Healthcare in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Operating Costing - Transport, Hotel and Healthcare: frequently asked questions
What is operating costing in CMA Inter?
Operating costing is a method to find the cost of providing a service. You choose a cost unit, such as passenger-km or bed-day, and divide total cost by units. It is used in transport, hotels, hospitals and similar services.
What is the difference between absolute and commercial units in transport costing?
Absolute units add the load carried on each leg multiplied by the distance of that leg. Commercial units use the average load multiplied by the total distance. Always check which one the question asks for.
Is this chapter more theory or numerical?
It is mainly numerical, with short theory on features and cost units. Learn the cost sheet layout and the unit calculations, because these decide most of the marks.
How do I find the charge rate in hotel or hospital questions?
Find total cost, divide by the correct units to get cost per unit, then add the required profit. Read whether profit is on cost or on sales before calculating.