Question

Composite cost unit under operating costing refers to _______ of service.

• A. quantum only
• B. period only
• C. both quantum and period
• D. transfer

Hint:

$$\text{Passenger-Kilometers} = \text{Total Passengers Carried} \times \text{Total Distance in Kilometers}$$ This composite calculation is essential for setting profitable fares in the transport industry.

Answer 1

The Correct Option is C

Step 1: Understanding Service Cost Units:
Service units can be classified into two main types:
• Simple Cost Units: Measured using a single metric, such as cost per kilometer traveled or cost per patient admitted.
• Composite Cost Units: Combined units that track two distinct variables simultaneously to provide a more accurate picture of operations.

Step 2: Analyzing the Variables of a Composite Unit:
A composite cost unit typically combines:
• Quantum (Volume/Weight/Distance/Capacity): E.g., metric tons, passengers, or rooms occupied.
• Period (Time/Duration): E.g., hours, days, or kilometers traveled. Common examples include the Ton-Kilometer (combining weight carried and distance traveled) and the Patient-Day (combining the number of patients and days of care).

Step 3: Selecting the Correct Option:
Because composite units combine both quantity and duration, they represent both quantum and period (C).