A composite cost unit is used when:

• A. Costs are fixed
• B. More than one factor influences cost
• C. There is only one driver of cost
• D. The cost unit is easily measurable

Answer: (B)

When costs are driven by more than one factor, a composite cost unit is used to reflect multiple drivers in one costing measure. If you only used a simple unit, you’d misallocate costs because different outputs may consume different amounts of each driver. A composite unit combines the several cost drivers into a single measure so that the cost allocated to each unit better matches the actual resources used. For example, if total cost depends on both material usage and setup time, a composite unit (or a weighted combination of the drivers) links cost to both factors rather than just a single one. If costs were fixed, or if there were only one driver of cost, or if the cost per unit is already straightforward to measure with no variation, there would be no need for a composite cost unit.