The cost of rendering the service for particular period is related to quantum of services rendered during the particular period to arrive at cost per unit of service rendered. So the principal of unit costing is used in service costing. An important feature of operating costing is that mostly such costs are fixed in nature. Accumulation and control of costs in transport costing are achieved through a daily log sheet and operating cost sheet. A daily log report is prepared for each vehicle and filled in by the drivers. This is a document which contains information regarding each journey.
The stage of production at which separate products are identified is known as
Operating costing is also applied in those undertakings engaged in steam production. In large firms, a boiler house is a service department providing services to production departments. Service rendered in the same organisation is known as internal service, for example, repairs and maintenance department or canteen in a factory.
Radiotherapy – per course of treatment per day or per person. It is generally full to the extent of 80% of its capacity. Find out the number of man-shows during the month. You may assume that period of summer and winter is six months each. V. Miscellaneous overheads like rent, rates, depreciation and insurance.
In some situations it may be necessary to calculate a composite cost unit. There are four main differences between the ‘output’ of service industries and the products of manufacturing industries. Let us consider baggage on an airline, the weight of the baggage and the km travelled by the plane will affect how much fuel cost is needed. Therefore, the composite cost unit here will be $ per kilo per km travelled. Frequently, a composite cost unit may be deemed more appropriate.
The monthly rent has been agreed at Rs.10 per square feet. Lighting and heating expenses come to Rs.10,000 per month. The object of canteen costing is to ascertain the cost per meal, cost per cup of tea etc.
It refers to the determination of cost of operations. It is a special type of process costing where an operation is a cost centre instead of a process. Iv) To make a comparative analysis of operating cost incurred for different periods. Cost units are always selected carefully based on the nature of business operations.
Production overheads represent indirect materials, indirect wages and indirect expenses attributable to:
To get a practical in cinema halls composite cost unit is overview of transport costing, please go through the example given in this article which is in the context of goods transport services. Further, we will be discussing on transport costing as an illustration of service costing. Therefore, we are going to view the computation of transport costing in this section. A monthly operating cost statement is usually prepared to ascertain the total cost and cost per meal.
The canteen manager or supervisor keeps control over the costs and performs service costing to ascertain revenue of these business organizations. For collection of expenses specially in transport service, a book known as log book is maintained for each vehicle. In the log book all the expenses and activities of the vehicle during that specified period are recorded for cost calculation purpose, maintenance purpose and control on cost purpose. Most of the companies are following this policy of paying remuneration on monthly basis.
- The costs of producing steam used in power house for the generation of electricity is also included in the power house costs.
- With this in mind, it is essential to know what these terms mean.
- The product produced is only one but it is some service.
- Operation cost centers are cost centers that consist of machines and/or persons carrying out similar operations, while a process cost center is one that consists of a specific process or a continuous sequence of operations.
- 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.
- Accumulation and control of costs in transport costing are achieved through a daily log sheet and operating cost sheet.
Economic Batch Quantity depends on ……………….and ……………..costs.
(i) These undertakings are engaged in rendering services of unique nature to their customers. Total costs are averaged over the total amount of service rendered. Service undertakings do not produce physical articles for stock and sale. Hotels, for example, may use the ‘occupied bed-night’ as an appropriate unit for cost ascertainment and control. A cost unit may be expressed in terms of number, length, area, weight, volume, time, or value.
Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year. A cost center in a company is formed by considering the convenience of cost accumulation, comparability, and cost control. Service costing is used when an organisation or department provides a service. The reason for this is that with service industries, more than one thing affects the cost. Following is the information given by the owner of hotel.
Hospital Costing – Departments, Illustration and Cost Sheet
(ii) These undertakings are required to invest a large proportion of their total capital in fixed assets e.g., trucks, buses, ships, aircrafts, railway engines, wagons, railway lines, etc. It can be applied to the services within the organisation as well as extending services to the community at large. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.