CS Executive Meaning of Service Costing: Scope/Service and Application
Online CS Executive classes: Service costing is a type of operation costing which is used in organizations which provide services instead of producing goods.
Services costs are the cost of providing and operating services in a particular sector. In short, it is considered generally by inducting services instead of producing goods. It is the method of costing which provides information on how to calculate the operating cost.
Scope of services
The services costing is directly concerned with the classification and accumulation of the cost of the service towards services rendered by undertakings.
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Features of Service Costing:
- Operating costing is the method of ascertaining costs.
- There is no physical stock of article if an undertaking renders a service.
- The undertaking which adopts service costing does not produce any tangible goods. These undertakings render unique services to its customers.
- Costs are usually computed period-wise. However, in the case of utilization of vehicles, use of road-rollers, etc., the costs are computed order wise.
- Uniform service is provided to all the customers.
- The costs are classified as fixed and variable.
- The fixed and variable cost classification is necessary to ascertain the cost of service and the unit cost of service.
- If a cost center is operating for an undertaking, there is no sale of service but render the service. In other words, if a cost center is operating for the public, it sells its service to the public.
- The cost unit may be simple in certain cases or composite or compound in other cases like transport undertakings.
- The cost unit may be simple or composite. The examples of simple cost units – cost per unit in electricity supply, cost per liter in water supply, cost per meal in the canteen, etc. Similarly, cost per passenger kilometers in transport cost per patient-day in hospital, cost per room-day in a hotel are the examples of composite cost unit.
- Total costs are averaged over the total amount of service rendered.
- The costs are collected from the authentic documents like daily log sheet, operating cost sheet, boiler house cost sheet, canteen cost sheets, etc.
- Operating cost is the cost of rendering service.
- Productive enterprises can quote prices by ascertaining cost data.
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Application of Service Costing:
Service costing is applied to the operations concerned in an organization which provides services to production departments. For example, Canteen for the staff, Hospital for the staff, Boilerhouse for supplying steam to production departments, Captive Power generation unit, the operation of a fleet of vehicles for the transport of raw material to factory or distribution of finished goods to the market outlets, computer department services used by other departments, etc.
When services are offered to outside customers with a profit motive and it is the business of the organization in offering services, like Transport organization, Hotel business, Power Generation Company etc., Service Costing is applied. The method of costing is similar to Output Costing. All costs incurred during a period are collected and analyzed and then expressed in terms of a cost unit of service.
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