Service Costing | Types of Services | Internal Services | External Services
Arjun EP
Service Costing | Concept of Service Costing
There are two types of business firms; goods selling firms or service providing or rendered firms.
Service costing is a type of operation costing which is used in service providing organizations.
In this service cost accounting, all the costs incurred in the production of a service are added together.
These costs are fixed costs, semi-variable costs and variable costs.
The sum of these costs is known as total cost.
The total cost is divided by the total units to find out per unit cost..
Service costing is followed by the service industries.
Generally there are two types of services.
They are internal services and external services.
Internal services
Services provided by sections and departments to the production department are called internal service.
External services
Services provided to public utility are called external service; they are:
Transport services
Supply services
Welfare services
Municipal services
Definition of service costing
According to ICMA, London, “Operative costing applies where standardized services are provided by an undertaking or by service cost center within undertaking.”
According to Wheldon, “Operative costing is unit costing as applied to the costing of service.”
Services, Composite Units and Single Unit
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Services |
Composite units |
Single unit |
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Transport goods |
Per ton-mile, per quintal-km |
Per ton or per km |
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Transport passengers |
Per passenger-mile, per passenger-km |
Per km |
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Hospital |
Per patient-day, per-bed day |
Per patient or per bed |
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Hotel logging |
Per room-day, per bed-day |
– |
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Electricity |
Per megawatt, per kilo watt |
Per unit |
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Water supply |
Per thousand liters |
Per liter |
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School, college |
– |
Per student |
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Cinema |
– |
Per person per show |
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Scope of Service | Scope of Operating Costing
Service industries have lot of opportunities.
It is saying that more than 60% amount are spent on service by the customers.
We need day to day service in our life.
Such as water, electricity, education, transport, mobile or phone, internet, tailoring, hair saloon, cable or dish service, doctoer examine and so on.
Nowadays service industries are multi-million industries.
Customer care required better service to live better life or living.
Types of Services | Classification of Services
The service provided to public directly by undertaking is called service costing.
These services may be rendered by a company to the public or same for internal use of manufacturing.
There are different types of services; they are:
Transport services
bus, truck, taxi, auto rickshaws, cable car, tramways, trolley bus, railways, seaways, airways, steamer etc.
Supply service
Water, electricity (power house, boiler house), telephone/mobile/internet, gas etc
Welfare service
Hospital, nursing home, education institute (school, college, university), library, cinema, park, hospital, hotel, canteen etc.
Municipality service
Street light, road maintenance, sewage etc.
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Financial Accounting and Analysis (All videos) |
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Accounting Process |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
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Features of Service Costing
Intangible products
Service costing deals with intangible products.
Service provider does not produce any tangible goods.
The service costing does not have any physical form but satisfies consumer’s needs and wants.
Collection of cost data
The documents used for service costing of products include cost sheet, daily log sheet etc are used for the collection of cost data.
Specialized service
The service organisation offers specialized and exclusive services.
Less working capital
The service costing involves less working capital compare with manufacturing company.
Direct expenses such as raw material, wages and overhead are is comparatively low.
Cost per unit
Mainly cost per unit is calculated in service costing.
Here, the cost unit is determined by the service industries by different methods.
They are ton-kilometer, passenger kilometer, per patient-day, per-bed day, per megawatt, per kilo watt etc.
Internal or external service
The service costing can be performed internally to determine the operating cost of sections and departments.
Else, it can be carried out externally by transport services, supply services, welfare services, municipal services etc.
Limitation of Service Costing
The main limitations of service costing are:
Service costing does not provide the information about marginal cost and contribution margin.
It does not follow the pure rule of income statement.
It does not follow the principle of accrual basis.
It does not provide the information regarding segment margin
Management cannot estimate market planning on the basis of service costing.
Keep in Mind (KIM)
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There are different types of service costing; such as: |
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Transport costing |
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Canteen costing |
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Boiler house costing |
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Power house costing |
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Hospital costing |
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Hotel costing |
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Multiple operation (process) costing |
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But according to syllabus only transport costing, canteen costing, hospital costing and hotel costing have been studied. |
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