ACCA Applied Knowledge · Management Accounting · Cost accounting methods
Which of the following is the most likely characteristic of a service organisation that makes service costing more difficult than product costing?
Services are intangible and used as they are produced, so they cannot be stored as inventory. This, along with variability and the difficulty of defining a unit, makes service costing harder than costing physical products.
- AServices are intangible and consumed as they are produced, so there is no inventoryCorrect
- BServices always have a single cost unit
- CService organisations have no fixed costs
- DService costs cannot be classified as direct or indirect
Explanation
Services are intangible, perishable, heterogeneous and simultaneously produced and consumed, so no inventory can be held and units are hard to define. The other options are false: services often have composite cost units, they do have fixed costs, and costs can still be direct or indirect.
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