The correct answer is: B. (1) and (2) only
Service costing is a type of cost accounting that is used to track the costs of providing services. Services are intangible products that are produced and consumed simultaneously. This makes it difficult to track the costs of services and to assign them to individual customers.
One of the challenges of service costing is that indirect costs often make up a large proportion of total costs. Indirect costs are costs that cannot be easily traced to a specific service or customer. Examples of indirect costs include rent, utilities, and administrative costs.
Another challenge of service costing is that composite cost units are often used. Composite cost units are groups of services that are similar in nature. For example, a hospital might use a composite cost unit called “patient day” to track the costs of providing care to a patient.
Equivalent units are not used in service costing. Equivalent units are used in process costing to track the progress of work in process. Process costing is a type of cost accounting that is used to track the costs of manufacturing products.
In conclusion, the characteristics of service costing are:
- High levels of indirect costs as a proportion of total costs
- Use of composite cost units
The following are not characteristics of service costing:
- Use of equivalent units