Service Costing

Service Costing

• A cost accounting method concerned with establishing the costs of services rendered
• Examples of where service costing is applied:
• Transport
• Hotels
• Tourism
• Solicitors
• Education
• Retail distribution
• Financial services

Service Costing

• Service costing is also applied within a manufacturing setting
• For example:
• a manufacturer might wish to calculate the costs of the following services:
• Transport
• Catering
• Computing and IT
• Accounting
• Human resources

The Differences Between Product Costing and Service Costing

• There may be very few, if any, materials to worry about
• Overheads will comprise the most significant portion of any costs of which, labour costs may well comprise as much as 70%

Service Costing: profit or cost centre?

• Many organisations simply want to determine the costs of operating its services from a management control and management information point of view
• However, there are many organisations now that operate services for their own organisations as well as sub-contracting them out to other organisations.

Sub-contracting Examples

• There are companies that operate their own payroll section for themselves; and offer this service to other organisations as well
• Other organisations sell CPU time on their computers at times when they do not use it themselves: for example, in overnight batch work.

Service Cost Units

• What are the cost units for a service?
• Transport -

• canteen services, office services, janitorial staff

• housekeeping, meals, room service

• Passenger miles, tonne miles, total miles driven

• Hotels -

• Education –