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Cost Unit Determination

A proper unit of cost must be selected in order to ascertain the cost per unit of service provided. The selection of proper unit is a difficult task and it depends upon the nature of work and the purpose for which cost has to be computed. The unit may be simple as under unit costing, e.g. per bed in case of hospitals, per 1,000 litres in case of waterworks, per child in case of schools, per k.m. of road maintained in case of a road maintenance undertaking, per cup of tea or per dish in case of canteen service etc. But, in certain cases, a composite unit of cost is used, e.g. per passenger-kilometre in case of bus companies, which means the cost of carrying one passenger for a distance of one kilometer. Similarly, cost per quintal-kilometre in case of motor transport means cost of carrying the load of one quintal for one kilometre. For electricity supply undertakings, the unit of cost may be kilowatt-hour which signifies the cost of one kilowatt of electricity generated during an hour.

Absolute tonne-kms and commercial tonne-kms

A distinction is to made in computation of absolute tonne-kms and commercial tonne-km. While calculating absolute tonne-km, the travel between any two stations is considered individually. Whereas in calculating commercial tonne-kms, the trip is considered as a whole.