COST ACCOUNTING SERVICE COSTING

Chapter 7 – Service costing

Service costing for service industries/functions.

Can service costing be applied in manufacturing organisations??

Yes…..because there ARE service functions in manufacturing organisations.

Common service industries in MA2 syllabus & cost unit (what brings in the revenue??)
• Hotel/hostel – room? night? room-night? (per room per night)
• Hospital
• Restaurant – cost per customer, cost per table,
cost per meal = cost per customer per meal = cost per customer per meal
• Transportation
o Bus
o Truck/cargo
1. Features of service
(1) Lack of ownership – no one can ACTUALLY “hold on” to a service.
One can provide a service; can own a brand; but the service itself, CANNOT be
“owned”.
(2) Intangible – CANNOT hold it physically; can only FEEL/experience it.
(3) Inseparable – cannot exactly split the services up; no separable/identifiable separate
units.
(4) Perishable/spontaneity (spontaneous) – the service is created and delivered ONLY
at the time it is going to be provided – no o/I, no c/I
(5) Heterogeneous – no two same services can actually be identical!
It may seem almost the same, but never exactly the same.
2. Features of service costing
(1) Material costs << Labour costs and Production overheads (Conversion costs)
(2) Direct costs (prime costs) << Indirect costs (overheads)
(3) Composite cost unit = a combination of cost units
i.e. room-night, tonne-km, passenger-km

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 COST ACCOUNTING SERVICE COSTING

Composite cost unit has more than 1 cost unit involved.

i.e. if you want to set a selling price for a bus service, what do you need? COST!
Selling price depends on what??
(1) Distance
(2) Type of bus → number of passengers it can carry….cost is being shared over how many
people?
So….what you need is COST per passenger per km!

Cost per passenger per km = cost = cost = cost

(Cost per passenger-km) passenger passenger x km passenger-km
km

Try this:
A small hotel has 50 rooms, but the occupancy rate usually achieved is 80%. Overall cost of
room services is about $6,000 a month.
Calculate:
(a) the number of occupied room-nights per month.
(b) the room services cost per occupied room-night per month.

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 COST ACCOUNTING SERVICE COSTING

Try this:
KargoTravel Ltd that has a small fleet of vehicles to transport cargo loads to limited yet various
parts of the country. All loads are measured in tonnes. On a particular week, the total costs
were $15,390. That week, five journeys were made with the following details:
Journey Load (tonnes) One-way distance (km)
1 5 100
2 8 50
3 4 70
4 10 200
5 3 80
30 500

Calculate cost per tonne-km for that week.

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