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Operating Costing

Service costing is used to determine the cost per unit of service rendered for organizations that provide services but do not produce goods. It involves grouping operating expenses under suitable headings for a specified period and then dividing the total expenses by the quantity of services provided to calculate the cost per unit of service. Some key features of service costing include classifying expenses as fixed or variable, using simple or composite cost units like cost per meal or cost per patient-day, averaging total costs over total services rendered, and computing costs periodically or order-by-order for some services.

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Tabitha Bowen
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113 views1 page

Operating Costing

Service costing is used to determine the cost per unit of service rendered for organizations that provide services but do not produce goods. It involves grouping operating expenses under suitable headings for a specified period and then dividing the total expenses by the quantity of services provided to calculate the cost per unit of service. Some key features of service costing include classifying expenses as fixed or variable, using simple or composite cost units like cost per meal or cost per patient-day, averaging total costs over total services rendered, and computing costs periodically or order-by-order for some services.

Uploaded by

Tabitha Bowen
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Service costing is in use where services are rendered but articles/goods are not produced.

Usually, it refers to the cost procedure used for determining the cost per unit of service rendered. Operating costing is a variant of unit or output costing. The terminology of CIMA defines service costing as the cost of specific services and functions, e.g., maintenance, personnel, canteen etc. These may be referred as service centres, departments or functions. Service costing involves the method of determination of the cost of services. The cost of providing a service is computed at ease. At the end of specified periods, the expenses (costs) of operating a service are grouped under suitable headings. The aggregate of these costs is to be divided by the quantity of services provided during the specified period to arrive at the cost per unit of service. Cost per unit of a product or service, or the annual cost incurred on a continuous process. Operating costs do not include capital outlays or the costs incurred in design and implementation phases of a new process.

Features of operating costing

The main features of operating costing are as following: (1) The undertaking which adopts service costing does not produce any tangible goods. These undertakings render unique services to their customers. (2) The expenses are divided into fixed and variable cost . Such a classification is necessary to ascertain the cost of service and the unit cost of service. (3) The cost unit may be simple or composite. The examples of simple cost units are cost per unit in electricity supply , cost per litre in water supply, cost per meal in canteen etc. Similarly cost per passenger kilometers in transport cost per patient-day in hospital, cost per room-day in hotel etc. are the examples of composite cost unit. (4) Total cost are averaged over the total amount of service rendered. (5) Costs are usually computed period-wise. However,in the case of utilization of vehicles, use of road-rollers etc., the costs are computed orderwise. (6) Service costing can be used for service performed internally or externally. (7) documents like the daily log sheet, cost sheet etc. are used for the collection of cost data.

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