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Chapter 12 Service Costing

The document discusses cost accounting methods for service sectors. It covers different costing units used in various service industries and calculating costs for service sectors like transportation, hotels, hospitals, IT and other financial institutes. The key differences between service costing and product costing are that services are intangible and cannot be stored as inventory.

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247 views3 pages

Chapter 12 Service Costing

The document discusses cost accounting methods for service sectors. It covers different costing units used in various service industries and calculating costs for service sectors like transportation, hotels, hospitals, IT and other financial institutes. The key differences between service costing and product costing are that services are intangible and cannot be stored as inventory.

Uploaded by

rohit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 12

SERVICE COSTING
LEARNING OUTCOMES
Discuss the cost accounting method for service sectors.
State the units used in different service sectors.
Calculate the costs for different service industries.

CHAPTEROVERVIEW

Application of Service Costing

Service Costing vs
Product Costing
Composite Unit

Methods of Ascertaining Service cost unit

Equivalent Unit

Service Cost Statement

Service Costing
Costing of Services: (i)Transport
Hotels & Lodges
Hospitals
IT & ITES (v) Toll Roads
Educational Institutes
Insurance
viii) Financial Institutes
(ix) Others

© The Institute of Chartered Accountants of India


12.2 COST AND MANAGEMENT ACCOUNTING

12.1 INTRODUCTION
Service sector, being a fastest growing sector and having a significant
contribution towards the GDP in India, is a very important sector where the role
of the cost and management accounting is inevitable. The competitiveness of a
service entity is very much dependent on a robust cost and management
accounting system for competitive pricing and identification of value adding
activities. Providers of services like transportation, hotels, financial services &
banking, insurance, electricity generation, transmission and distribution etc. are
very much cost conscious and thrive to provide services in a cost effective
manner. Irrespective of regulatory requirements to maintain cost records and get
the records audited, service costing becomes integral and inseparable part of
each service entity. In this chapter, we will be discussing how costing is done in
service sectors like Transportation, Toll roads, Electricity generation, transmission
and distribution, Hospitals, Canteen & Restaurants, Hotels & Lodges, Educational
institutes, Financial institutions, Insurance, Information Technology (IT) &
Information Technology Enabled Services (ITES) etc.
Service costing is also known as operating costing.
12.1.1 Application of Service Costing:
Internal : The service costing is required for in-house services provided by a
service cost centre to other responsibility centres as support services. Examples
of support services are Canteen and hospital for staff, Boiler house for supplying
steam to production departments, Captive Power generation unit, operation of
fleet of vehicles for transport of raw material to factory or distribution of finished
goods to the market outlets, IT department services used by other departments,
research & development, quality assurance, laboratory etc.
External : When services are offered to outside customers as a profit centre in
consonance with organisational objectives as an output like goods or passenger
transport service provided by a transporter, hospitality services provided by a
hotel, provision of services by financial institutions, insurance and IT companies
etc.
In both the situation, all costs incurred are collected, accumulated for a certain
period or volume, recorded in the cost accounting system and then expressed in
terms of a cost unit of service.
12.1.2 Service Costing versus Product Costing:
Service costing differs from product costing (such as job or process costing) in
the following ways due to some basic and peculiar nature.
(i) Unlike products, services are intangible and cannot be stored, hence, there is no
inventory for the services.
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