Service Costing Q&A
Accounting Q&A · Cost and Management Accounting · Topic 11
Work through the questions, then reveal the answers to check your reasoning.
25 short-answer questions. Try each question before revealing its answer.
Worked example
A bus carries 30 passengers for 40 km and 20 for another 20 km. Total passenger-kilometres are 1,600. If the trip costs 800, cost per passenger-kilometre is 0.50.
Core concepts
1. What is service costing?
Measuring costs of providing a service and relating them to service output.
2. What is another name for service costing?
Operating costing is a common textbook term.
3. What is a cost unit in transport?
A unit such as vehicle-kilometre, passenger-kilometre or tonne-kilometre.
4. What is a composite cost unit?
A unit combining two measures, such as passengers and distance.
5. What is a passenger-kilometre?
One passenger carried for one kilometre.
6. What is a tonne-kilometre?
One tonne carried for one kilometre.
7. What might a hotel use as a cost unit?
An occupied room-night, depending on the analysis.
8. What might a hospital use?
A patient-day, procedure or case, depending on the question.
9. What are standing costs in transport?
Costs that generally remain during a period, such as vehicle licences or insurance.
10. What are running costs?
Costs that vary with operation, such as fuel that depends on kilometres driven.
Worked applications
11. A bus carries 25 passengers for 60 km. How many passenger-kilometres?
1,500.
12. It then carries 15 passengers for 20 km. What is the combined output?
1,800 passenger-kilometres.
13. If total cost is 900, what is cost per passenger-kilometre?
0.50.
14. A truck carries four tonnes for 80 km and returns empty. What are loaded tonne-kilometres?
320. The empty return adds vehicle-kilometres and cost.
15. A route costs 420 for 140 vehicle-kilometres. What is cost per vehicle-kilometre?
3.
16. A hotel has 50 rooms for 30 days and sells 1,200 room-nights. What is occupancy?
80%.
17. The hotel incurs 60,000 in costs. What is average cost per occupied room-night?
50, using the 1,200 occupied room-nights.
18. A clinic incurs 15,000 for 300 visits. What is average cost per visit?
50.
19. Why distinguish capacity cost from incremental service cost?
Average cost includes shared capacity costs that may remain when one more service is delivered.
Review and exam practice
20. What is practical capacity?
Capacity achievable after reasonable allowances for downtime and other operating limits.
21. Why report empty trips or unused slots separately?
They explain the difference between capacity supplied and service delivered.
22. How can route mix affect average cost?
Routes differ in distance, congestion, load and vehicle usage.
23. How do you allocate fleet costs to routes?
Use a driver linked to consumption, such as vehicle-hours or kilometres, and document exceptions.
24. Why compare cost with a quality measure?
A lower cost per visit can hide longer waits or poorer outcomes.
25. What should a service cost report reconcile?
Agree costs and output to supporting records and explain utilisation changes.
