CA Intermediate · Cost and Management Accounting · Service Costing
In service costing, which of the following best describes a 'composite cost unit'?
A composite cost unit is one formed from two measures, such as passenger-km, tonne-km or patient-day. It is used in service costing because a single measure cannot fully capture the service delivered, and it is not a pool of costs or a sales-based measure.
- AA unit made of two measures, such as passenger-km or tonne-kmCorrect
- BA unit that combines costs of several departments into one pool
- CA unit used only when output is homogeneous and physical
- DA unit based on the monetary value of sales
Explanation
A composite cost unit combines two related measures, for example passenger and kilometre, or tonne and kilometre, because a single measure cannot capture the service rendered. It is not a cost pool, nor a physical unit of homogeneous output, nor a sales-value measure.
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