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CMA Final · Cost and Management Audit · Audit of Different Service Organisations

A cost auditor reviewing a transport service company finds that the cost per passenger-kilometre was computed by dividing total operating cost by total kilometres run by all buses, including empty and depot-return runs. What is the main flaw an auditor should report?

The flaw is the wrong denominator: cost per passenger-kilometre must be divided by effective passenger-kilometres, meaning passengers carried times distance, not by total bus kilometres including empty runs. Otherwise the unit cost does not reflect actual service delivered.

  1. AThe denominator should be revenue rupees, not kilometres
  2. BThe denominator should be effective passenger-kilometres, i.e. passengers carried multiplied by distance travelledCorrect
  3. CThe numerator should exclude all fuel cost
  4. DThe unit should be the number of buses owned

Explanation

A passenger-kilometre unit is a composite unit based on passengers carried and distance. Using total bus kilometres ignores load and understates the true per-unit cost. Revenue, excluding fuel, or bus count would not give the proper unit.

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