CA Inter P4 · Chapter 11

Service Costing MCQs with Answers

8 multiple-choice questions on Service Costing for CA Inter P4 Cost and Management Accounting. Try each one before revealing the answer and explanation.

1. Question 1

   Service costing is also known as:

   • A) Operating costing
   • B) Batch costing
   • C) Process costing
   • D) Uniform costing
   Show answer & explanation

   Answer: A) Operating costing

   Service or operating costing is used by undertakings that provide services, such as transport, hospitals, hotels and power supply, rather than manufacture products. Costs are ascertained per composite or simple service unit.

2. Question 2

   A bus has 50 seats and on average 80% of seats are occupied. It makes 2 round trips a day between two towns 150 km apart and operates 25 days a month. The passenger-kilometres per month are:

   • A) 3,00,000
   • B) 6,00,000
   • C) 7,50,000
   • D) 12,00,000
   Show answer & explanation

   Answer: B) 6,00,000

   Distance per day = 150 km x 2 (each round trip) x 2 trips = 600 km. Passengers carried on average = 50 x 80% = 40. Passenger-km per month = 40 x 600 x 25 = 6,00,000. Ignoring the return leg halves the figure; ignoring occupancy gives 7,50,000.

3. Question 3

   The bus described above incurs total operating costs of ₹4,50,000 per month for 6,00,000 passenger-km. The fare per passenger-km required to earn a profit of 20% on takings (rounded to the nearest paisa) is:

   • A) ₹0.90
   • B) ₹0.94
   • C) ₹0.75
   • D) ₹0.60
   Show answer & explanation

   Answer: B) ₹0.94

   Cost per passenger-km = ₹4,50,000 / 6,00,000 = ₹0.75. If profit is 20% of takings, cost is 80% of the fare: fare = ₹0.75 / 0.80 = ₹0.9375, i.e. ₹0.94 rounded. Adding 20% to cost (₹0.90) gives profit of only 16.67% on takings.

4. Question 4

   The most appropriate cost unit for a hospital is:

   • A) Tonne-kilometre
   • B) Patient-day (or bed-day)
   • C) Kilowatt-hour
   • D) Passenger-kilometre
   Show answer & explanation

   Answer: B) Patient-day (or bed-day)

   Hospitals measure their service in terms of patients accommodated over time, so costs are expressed per patient-day or bed-day. Tonne-km is used for goods transport, kWh for electricity and passenger-km for passenger transport.

5. Question 5

   Which of the following is the appropriate cost unit for an electricity supply undertaking?

   • A) Room-day
   • B) Per 1,000 units
   • C) Kilowatt-hour
   • D) Cubic metre of earthwork
   Show answer & explanation

   Answer: C) Kilowatt-hour

   Electricity is generated and supplied in kilowatt-hours (kWh), so the cost per kWh is the relevant measure. Room-day is used in hotels and cubic metre in earthmoving or construction-type services.

6. Question 6

   A truck carries 8 tonnes from city A to city B (150 km), then 5 tonnes from B to C (90 km), and returns empty from C to A (120 km). The commercial tonne-km for the round journey is:

   • A) 1,650
   • B) 2,340
   • C) 1,560
   • D) 4,680
   Show answer & explanation

   Answer: C) 1,560

   Commercial tonne-km = average load per trip x total distance. Average load = (8 + 5 + 0) / 3 = 4.3333 tonnes; total distance = 150 + 90 + 120 = 360 km. Commercial tonne-km = 13/3 x 360 = 1,560. Absolute tonne-km (sum of load x distance for each leg) would be 8 x 150 + 5 x 90 = 1,650.

7. Question 7

   A hotel has 120 rooms with an average occupancy of 75% and is open 360 days a year. Total annual cost is ₹1,94,40,000. The cost per room-day occupied is:

   • A) ₹450.00
   • B) ₹591.78
   • C) ₹750.00
   • D) ₹600.00
   Show answer & explanation

   Answer: D) ₹600.00

   Room-days occupied = 120 x 75% x 360 = 32,400. Cost per room-day = ₹1,94,40,000 / 32,400 = ₹600. Ignoring occupancy would give ₹450, which understates the cost of rooms actually let.

8. Question 8

   In the operating cost sheet of a goods transport company, which of the following is treated as a standing (fixed) charge?

   • A) Diesel consumed
   • B) Insurance of the vehicle
   • C) Tyres and tubes
   • D) Lubricants
   Show answer & explanation

   Answer: B) Insurance of the vehicle

   Standing charges are fixed costs incurred irrespective of the distance run, such as insurance, road tax, garage rent and salaries of permanent staff. Running charges such as diesel, lubricants and tyre wear vary with the kilometres operated.