ACCA MA Syllabus C. Cost Accounting Techniques - Suitable unit cost measures - Notes ^{16 / 17}

Suitable unit cost measures that may be used in different service/operation situations

The main problem with service costing is the difficulty in defining a realistic cost unit that represents a suitable measure of the service provided. 

Frequently, a composite cost unit may be deemed more appropriate. 

Therefore, two variables will be considered.  

Hotels, for example, may use the 'occupied bed-night' as an appropriate unit for cost ascertainment and control.

Typical cost units used by companies operating in a service industry are

The total cost of providing a service will include labour, materials, direct expenses and overheads.

In service costing, labour may be the only direct cost involved in providing a service.

Overheads will make up the remaining total costs.

The cost per service unit is calculated by establishing the total costs involved in providing the service and dividing this by the number of service units in providing the service.

.                                                       Total costs for period
Cost per service unit = -----------------------------------------
                                          Number of service units in the period