Definition: The term service costing or operating costing refers to the computation of the total operational cost incurred on each unit of the intangible product. It is to ensure fair pricing of the products, i.e., services; and for keeping a control over its fixed and variable costs.

What are the features of service costing?

MAIN FEATURES OF SERVICE COSTING

• Companies here render unique services & do not produce any tangible goods.
• The expenses are divided into fixed and variable cost which helps to calculate cost per unit of service.
• Total cost is averaged over the total amount of service rendered.
• Costs are usually computed period-wise.

What do you understand by cost?

In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost.

What is service costing used for?

‘ Service Costing is also known as ‘operating costing’ is used for establishing costs of services rendered or services offered for sale and no items are produced. Service costing is used in service organizations like transport companies, hotels, hospitals, power generation, colleges, boiler houses etc.

What are the advantages of service costing?

Shows margins and rate of return for each customer class; Shows differences in rates of return and thus cross-subsidies among customer classes; Provides detailed cost information necessary for developing rates; Provides “average customer” information for each class.

What are the features of service?

The most important characteristics of services are:

• Lack of ownership.
• Intangibility.
• Inseparability.
• Variability.
• Perishability.
• User participation.

Which is the best definition of service costing?

Collection of Cost Data: The documents used for service costing of products include cost sheet, bills payables, daily log sheet, etc. Unique and Standard Service: The services so offered by such organizations are specialized and exclusive.

How is the cost of a service calculated?

All the costs incurred during a period are collected and analyzed and then expressed in terms of a cost per unit of service. One specific issue with service costing is the difficulty in defining a realistic cost unit that represents a suitable measure of the service provided.

What should be included in cost of services?

Direct Labor or Salaries Expense: T he cost of direct labor or salaries of experts should be included while calculating the cost of services. For example, if a repairing company takes a contract for repairing a house in 3 days. The company has done the job with the help of 1 labor who works for 30 hours at a rate of $5 per hour.

How are cost units used in service organizations?

In practice, the cost units used by some service organizations are given below: Operating costing is similar to output costing. All costs are suitably classified under fixed and variable. These costs are then collected, analyzed and expressed in terms of appropriate cost unit.