CA Intermediate · Cost and Management Accounting · Service Costing
Which statement about service costing is correct?
Service costing is applied by organisations that provide intangible services, such as transport, hospitals and power supply, and it often uses composite cost units like passenger-km or patient-day. It does not apply only to manufacturers, and fixed and variable classification still matters.
- AService costing is used by organisations producing intangible output, and the cost unit is often a composite unitCorrect
- BService costing is used only by manufacturing firms that produce tangible goods
- CService costing never uses composite cost units such as passenger-km
- DService costing ignores the classification of costs into fixed and variable
Explanation
Service costing applies to organisations such as transport, hospitals and hotels whose output is intangible. Cost units are frequently composite, such as passenger-km or patient-day. The other options contradict this and wrongly deny cost classification.
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