The term service costing or operating costing refers to the computation of the total operational cost incurred on each unit of the intangible product. These intangible products or services can be either in the form of internal services that are carried out by industries as supporting activities for the manufacturing of goods. Or in the way of external services that are offered as a significant product to the customers by the service sector companies.
Features of Service Costing: The costing in a service industry can be better understood with the help of the following characteristics:
Intangible Products: Service costing deals with the operating cost of products which does not have any physical form but satisfies consumer needs and wants.
Collection of Cost Data: The documents used for service costing of products include cost sheet, bills payables, daily log sheet, etc.
Unique and Standard Service: The services so offered by such organizations are specialized and exclusive.
Less Working Capital: The service costing involves less working capital since the direct cost of raw material and other direct expenses is comparatively low.
Cost Per Unit: The cost per unit is mainly calculated in service costing. Here, the cost unit is determined by the type of service industry the business belongs to, and it usually differs from company to company.
Like, in the case of goods transport it is ‘tonne-miles’; whereas, in boilers, it is ‘per cubic centimetre-litre’.
Internal or External Service: The service costing can be performed internally, to determine the operating cost of the supporting activities in manufacturing industries.
Else, it can be carried out externally, by the companies dedicated to rendering such services.
Cost Classification by Behaviour: In the operating cost sheet format, all the business costs are classified according to their behaviour, i.e., fixed costs, semi-variable costs and variable costs.
Periodic or Order Wise Computation: The service costing records the overheads at regular intervals, i.e., monthly or yearly but for operating cost of vehicles like tractors and JCB machines, order wise computation is adopted.
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