EXPLAIN the Methods for ascertaining Service Cost Unit.

Methods for ascertaining Service Cost Unit Composite Cost Unit Sometime two measurement units are combined together to know the cost of service or operation. These are called composite cost units. For example, a public transportation undertaking would measure the operating cost per passenger per kilometer. Examples of Composite units are Tonne-km., Quintal-km, Passenger-km., Patient-day etc. Composite unit may be computed in two ways. (i) Absolute (Weighted Average) basis. (ii) Commercial (Simple Average) basis. In both bases of computation of service cost unit, weightage is also given to qualitative factors rather quantitative (which are directly related with variable cost elements) factors alone. (i) Weighted Average or Absolute basis – It is a summation of the products of qualitative and quantitative factors. For example, to calculate absolute Tonne-Km for a goods transport is calculated as follows.: ∑(Weight Carried × Distance)1 + (Weight Carried × Distance)2 +....+(Weight Carried × Distance)n Similarly, in case of Cinema theatres, price for various classes of seats is fixed differently. For example- First class seat may be provided with higher quality service and hence charged at a higher rate, whereas Second Class seat may be priced less. In this case, appropriate weight to be given effect for First Class seat and Second Class seat to ensure proper cost per composite unit. (ii) Simple Average or Commercial Basis – It is the product of average qualitative and total quantitative factors. For example, in case of goods transport, Commercial Tonne-Km is arrived at by multiplying total distance km., by average load quantity. ∑(Distance1 + Distance2 + .... + Distancen) × (W1+ W2 + .... + Wn) / n In both the example, variable cost is dependent of distance and is a quantitative factor. Since, the weight carried does not affect the variable cost hence and is a qualitative factor. Equivalent Cost Unit/ Equivalent Service Unit: To calculate cost or pricing of two more different grade of services which uses common resources, each grade of service is assigned a weight and converted into equivalent units. Converting services into equivalent units make different grade of services equivalent and comparable.