Service Costing

1. Service Costing
It can be internally or externally.
Industries will have high fixed cost than variable cost
Requires huge investment and comparatively less variable cost

t e s
2. Cost Unit
The terms in which costs are expressed. d a
U p
S
Single Cost Unit
A
Where only one unit is
involved e.g. kg, dozen etc.

Cost Unit T Where more than 1 units are

Multiple or Composite Cost involved
Unit e.g. passenger-km, ton-km
etc.
 Service Costing
3. Cost Unit in case of Trucks or lorries
(A) Absolute Ton-km = Actual kms X Actual tons

(B) Commercial Ton-km = Actual kms X Average tons

t e s
4. Effective Cost Unit = Total units – Normal loss units d a
U p
S
*Strike is an abnormal loss so shouldn’t be deducted from effective cost unit.
A
T
 Service Costing
5. Total Cost

Total Cost
Fixed or Standing Charges
t e s
E.g. rent, insurance, salary,

d a
depreciation (if fixed) etc.

p
U E.g. petrol/oil, lubricants,
A S
Variable or Running Charges depreciation (if variable)
etc.
T E.g. tyres and tubes, repair
Maintenance & maintenance, servicing
cost etc.
 Service Costing
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕
6. Cost Per Unit = 𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒄𝒐𝒔𝒕 𝒖𝒏𝒊𝒕

7. Points To Remember (PTRs)

(A) Petrol, oil and similar charges are always on the basis of actual km travel

t e s
(B) Treatment of Depreciation
d a
U
Life based on years
p Fixed in nature
Depreciation A S
Life T
based on some
Variable in nature
variable base e.g. Kms
 Service Costing
(C) Service cost of Rs. 4,000 after every 3000 kms.
If actual kms travel; = 3,500; No. of service = 3500/3000 = 1.17 or 1 Cost = 4000 X 1 = 4,000
If actual kms travel; = 8,500; No. of service = 8500/3000 = 2.83 or 2 Cost = 4000 X 2 = 8,000

(D) Treatment of Distance (when question is silent about the distance)

t e s
20 km trip d a
Distance travel

U p = 20 kms
Mr. X travels
A
20 km round
S Distance travel
T
trip = 40 kms

(E) In case of different charges for different categories of service, use the concept of equivalent unit of services.