Service costing

When a plant or machine is taken as a unit, it is an impersonal cost center; when a person or group of persons are taken as a unit, the personal cost center is implied. For in cinema halls composite cost unit is example in case of hospital, the cost of medicine, diet, laundry etc. will represent the running charges. In case of transport service petrol or diesel, lubricating oil, wages of driver or cleaner are operating or running charges.

These are costs of semi-variable nature and include expenditure on repairs, maintenance, tyres, tubes, accessories and spares. CIMA defines the method “Operating costing applies where standardized services are provided by an undertaking’. The government organizations, factories, companies, offices, colleges, schools and even hospitals have canteens to provide affordable foodstuff like meals, refreshment, snacks, etc. to the staff, students and patients. (v) Miscellaneous Service Departments i.e., the departments engaged in providing services to the above four departments such as transport department, dispensary, general porting etc. To compare the cost per unit of operating one vehicle, with another vehicle, and to ascertain the efficiency of each vehicle.

In service costing, labour may be the only direct cost involved in providing a service. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. By contrast, the “process cost center is a cost center which consists of a continuous sequence of operations.” If costs are accumulated for a person, machine, or department, then this entity will be treated as a cost center.

1. Documents like the daily log sheet, operating cost sheet, boiler house cost sheet, canteen cost sheet etc. are used for the collection of cost data.
2. It refers to the determination of cost of operations.
3. Operating costing is used by concern running diverse nature of activities, the cost system is obviously different from that for manufacturing concerns.
4. 11 Financial is a registered investment adviser located in Lufkin, Texas.
5. Alternatively, service organisations may use several different cost units to measure the different kinds of service that they are providing.

Which of the following costs is treated as indirect labour?

Also, the variable charges like medicines, bed charges, doctors fees, etc. are involved in the total cost. The costs of a hospital are divided into fixed and variable costs. Besides, one can find a number of organizations which are remunerating their employees on the basis of both the time and output. For instance, a good number of State Road Transport Corporations in India are rewarding their crew members on the basis of monthly salary plus commission at a specific percentage of the traffic revenue earned. In this type of situations, labour remuneration falls into the category of semi-variable or semi-fixed costs. Documents like the daily log sheet, operating cost sheet, boiler house cost sheet, canteen cost sheet etc. are used for the collection of cost data.

These expenses are incurred on the repairs and maintenance of the vehicle, so as to keep the vehicle in proper condition. But in case of other undertakings, a composite unit of cost is used. For example, in case of transport undertakings, it will be per passenger kilometre or per ton kilometre. In its broadest sense, wherever a service is rendered, the principles and method of operating costing can be applied. In other words, a cost unit is a standard or unit of measurement of the goods manufactured or services rendered. A cost unit is defined as “a unit of quantity of product, service, or time (or a combination of these) in relation to which costs may be ascertained or expressed.”

Types of Cost Units

According to the Institute of Cost and Management Accountants, the “operation cost center is a center which consists of those machines and/or persons which carry out the same operations.” According to the Institute of Cost and Management Accountants, “Impersonal cost center consists of a location of item of equipment whereas personal cost center consists of a person or a group of persons.” Factories might choose productive cost centers whereas an administrative wing might choose an unproductive cost center.

Operating costing is a method of costing designed to ascertain and control the costs of services. Those industries or organisations which do not produce any product but render some service to customers can use this method. The object of service costing is to find the operating cost, i.e., cost of servicing.

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Operating costing is characterised by a form of unit costing. The product produced is only one but it is some service. The service being provided is standardised, or is regarded as such. These may be for sale to the general public, or within the organisation itself. In fact, every manufacturing entity has some service centres, else service departments which act as ancillaries to the production departments. It defined a cost center a location, person, or item of equipment (or a group of these) for which costs may be ascertained and used for the purposes of cost control.

Alternatively, service organisations may use several different cost units to measure the different kinds of service that they are providing. Service costing has given a new dimension to the intangible products in the accounting world. This is also important in the sense that the service industry has rapidly evolved in recent years, introducing a variety of service products for consumers. The services provided by the medical organizations like hospitals health centres, nursing homes, medical camps and clinics require cost analysis, which is possible through service costing.