Page 239 - F2 - MA Integrated Workbook STUDENT 2018-19

Service and operation costing

Test your understanding answers

Test your understanding 1

Which of the following are characteristics of service organisations? Select all
that apply.

Tick

A low incidence of work in progress at the end of a period 

Difficulty in identifying and measuring objectives

A focus on contribution

The use of composite cost units 

Many services are consumed as soon as they are made available to the
customer. They cannot be held in inventory for sale at a later date.
Therefore there is a low incidence of work in progress at the end of a period.

Composite cost units are often used because they are more useful for control
purposes, for example in a haulage company a cost per tonne-mile might be
more useful for planning and control purposes than a simple cost per tonne.

Difficulty in identifying and measuring objectives would be a feature of a not-
for-profit organisation.

There is more likely to be a focus on contribution in a manufacturing
organisation as service organisations tend to have a very high proportion of
indirect costs making contribution less useful.

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