Service costing
Concept/meaning of service costing
Service costing is the technique of finding the total operating cost and cost per services of services organization i.e. transportation, hospital, hotel, school and college, cinema hall and power house, library, drinking water etc.
Service costing is applicable for those understanding or services cost center under any enterprise, which provides generated services. These types of services may be needed for internal as well external purposes. Services generated for internal purpose means ancillary services provides by sections and department to the production department under a manufacturing concern as canteen, builder house, electronic generation department services etc. the services generated for external purposed are directly related to the public utility services provides to the public. As transport services, inutility services, distribution services, etc.
The method of operating costs used for the costing of services can be distinguished from the costing of manufactured products. Operating cost is the cost of providing services. Operating costing is the term applied to describe the system used the system used to find the cost of performing the services
According to institute of cost and management accountants (ICMA), London, "operating costing applied where standardized services are provides by a undertaking or by the service cost center within undertaking."
According to wheldon, "operating services is a until costing as applied to the costing of services."
Thus, 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 how to calculate operating cost.
Scope of services
The services costing is the directly concerned with the classification and accumulation of the services cost towards services rendered by undertakings. The services provided by an enterprise can be categorized as follows from the costing point of view.
a. Transport services: airways, railways, vehicle, shipping, cable car etc.
b. Welfare services: hospital, nursing home, libraries, canteen, hotel.
c. Supply services: gas supply, electricity supply, water supply, telephone, electricity authority etc.
d. Municipal services: steel lighting, road maintenance etc.
These services may either be rendered by a company to the public or some of these could be local level to a factory, for its own internal use, e.g. canteen, delivery van, township maintenance etc. a canteen in a factory can either be run by a factory itself or it can be let out to a contractor at an agreed rate.
Cost unit in public sector
A major problem than can arise in operating costing is determining suitable cost units to be used for cost ascertainment since; the nature of services based on organization differs from the nature of manufacturing department. Therefore, a peculiar until of cost is used for different services based on undertaking. The unit used in services costing is said as cost until.
Types of units of cost
On the basis of services generation and render, the cost unit is divided into the following two types:
a. Single cost unit: it is the unit made by single element. As for example; per ton, per km, per passenger, per liter, per patient, per day, per plate, per room etc.
b. Composite cost unit: it is the cost unit made by two than two elements. As for example, per passenger km. per thousand liter, per kwh, per tone mileage, per patient day, per bed day etc. a few units of cost used in various costing are introduced as follows:
Transport services costing
Transport industries may be of various types, e.g. air, water, road, railways etc. motor transport includes private cars, carriers for owner's use, buses, taxied, Lorries; tempo etc. in order to determine the cost of transport, this costing is brought is used. The main purposed of transport costing can be introduced as follow:
a. To provides knowledge about the efficiency of vehicles used.
b. To get idea for fixing quotation rate.
c. To control the fuel consumed on the way.
d. To make comparison of the operating cost of one group of vehicles with another group.
e. To prepared daily log sheet.
Classification of cost
The cost incurred in transport services can be classified into the following three categories:
The following daily long sheet is prepared to accumulate the daily expenses.
Selection of units
In transport costing, a composite units such as passenger-mile or ton-km is often selected.
They are calculated as under.
a. Total km= no. of vehicle x no. of days x no. of trips x 2 (for round trip) x distance
b. Total passenger km= total km x normal seating capacity x actual capacity percentage
c. Total ton km= total km x normal capacity in no. or tone x actual capacity %
Statement of cost
In services costing, a statement is prepared for analyzing the operating cost incurred. The operating cost sheet is analyzed into three parts namely statement charges, maintenance charges and running charges. It also shows the comparison between the actual cost and the estimated or budgeted cost. Thus, the cost sheet can be used to measure the efficiency of operating the vehicle, and operating cost incurred.
The specimen of operating cost sheet is being produced as per the following manner.
Now-a-days many undertaking, such as public enterprises, government owned organizations, schools, campuses provides the faculties of a cheap canteen to their staff. The principles of services costing may also be extended to this field. Generally, the operating charges relating to a canteen included the following:
a. Wages and salaries of canteen staff
b. Provisions for foods materials, such as meat, fish curry, cakes, milk, coffee etc.
c. Services, such as-gas, steam, electricity, water etc.
d. Consumable stores, such as-table linen, cutlery crockery, cleaning materials, glassware mops and washing up clothes, dustpans, brushes etc.
e. Miscellaneous overhead, such as rent, rates, taxes insurance, depreciation advertisement, administration expenses, etc.
The person in charge of the canteen generally estimates the quantity of food-required every day. The revenue of a running canteen includes the subsidy given by enterprise and sales of food materials. It is difficult to estimate the price for various food provisions or the price per meal taken by such worker because it involves equality one types of meal with another.
The pro-forma of canteen operating cost sheet is given below:
Hotel and restaurant service
Hotel costing is adopted by those services-based concerns, which are involved with the activities like provision for food and accommodation, recreation facilities, business facilities; shopping facilities etc. the hotel industry has to insure various expenditures to operate the above mentioned services activities. Generally, the expenses may be in the nature of fixed variable. The costs incurred by hotel industry are as follows:
In order to have, per unit operating cost, total operating cost is divided by number of room days
Total room days= No. of rooms x days in a month x % occupied
Hospital services
The operating costing for hospital services is used to compute the cost of medical services provided hospital services included the services provided by hospital, nursing home, health center, medical campus etc. there are a lot of departments and facilities in a hospital and such department are established on the basis of factions performed by them. The departments available in a hospital are out patient department, medical services department, general services department and miscellaneous services department.
Power house and electric supply services
Powerhouse is involved in generating power from water, sunlight and gas and suppliers to different organization or units. A powerhouse prepares a statement of cost to ascertain the per unit cost of energy to be supplied. Generally the cost incurred in power supply services can be divided into the following two categories.
a. Variable charges
b. Fixed charges
The following is a specimen of an operating cost sheet of a powerhouse.
Boiler-hose services
A boiler house is established to produce steam which is used in electric power generation, air conditioning and air compression. This is generally a services department that assists the power and electric service departments. The cost of steam produced is obtained by relating the total cost to net quantity of system produced.
a. Fuel
b. Labour cost
c. Cost of water
d. Indirect materials
e. Indirect labour
f. Maintenance
g. Fixed overheads
The following is a specimen of a boiler house cost sheet:
1. What do mean by service costing?
Service costing is the technique of finding the total operating cost and cost per services organization i.e. transpiration, hospital, hotel and college, cinema hall and power house, library, drinking water etc.
Service costing is applicable for these undertaking or service cost center under any enterprise, which provides generated sources. These types of services may be needed for internal as well as external ancillary services provides by section and department to the production department under a manufacturing concern, boiler house, electronic generation department services etc. the services generated for external purposed are directly related to the public utility services provided to the public. As transport services, utility services, distribution services, etc.
2. In which sectors, service costing are applied?
The service costing is directly concerned with the classification and accumulation of the service cost towards service rendered by undertakings. The service provided by an enterprise can be categorized as follows from the costing point of view.
a. Transport service: airway, railways, vehicle, shipping, cables car etc.
b. Welfare services: hospital, nursing home, libraries, canteen, hotel.
c. Supply services: gas supply, electricity supply, water supply, telephone, electricity authority etc.
d. Municipal service: street lighting, road maintenance etc. these services may either be rendered by a company to the public or some of these could be local level to a factory, for its own internal use, e.g. canteen, delivery van, township maintenance etc. a canteen in a factory can either be run by a factory itself or it can be let out to a contractor at an agreed rate.
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