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CA Intermediate · Cost and Management Accounting · Service Costing

In service costing, which of the following is a typical feature that distinguishes service cost units from manufacturing cost units?

The distinguishing feature is that services are intangible and are produced and consumed at the same time. They cannot be stored as finished stock, so unused capacity is lost, and service costs are mostly labour and overheads rather than materials.

  1. AServices can be stored as finished stock for later sale
  2. BServices are intangible and are produced and consumed at the same timeCorrect
  3. CServices always have a large raw material component
  4. DServices have a fixed, uniform cost unit across all industries

Explanation

Services are intangible, perishable and inseparable: they are produced and consumed simultaneously and cannot be stored as inventory. Hence option 1 is correct. Option 0 is wrong because services cannot be stocked, and option 2 is wrong because service costs are mostly labour and overheads rather than materials.

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