CA Intermediate · Cost and Management Accounting · Service Costing
Which of the following statements about service costing is correct?
The correct statement is that composite cost units such as passenger-kilometre are commonly used in service costing. Services are perishable with no inventory, material cost is typically small, and service costing can be applied to internal services like canteens as well.
- AServices are storable, so closing inventory is valued at cost
- BService costing normally has a high proportion of direct material cost
- CComposite cost units such as passenger-kilometre are commonly usedCorrect
- DService costing cannot be applied to internal services of a company
Explanation
Services are intangible and perishable, so they cannot be stored and there is no inventory. Material cost is usually low, and fixed costs are high. Composite units like passenger-km and tonne-km combine two measures. Service costing also applies to internal services such as canteens and power houses.
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