Question

Service Industry Costing: Select a service industry company of your choice that uses costing and explain the benefits of costing for service companies. Cite your work and include sufficient detail.

Answer 1

The benefits of costing for service companies:

The service industry being the very competitive one, so the service providers have to keep looking for more and more efficient ways to reduce operating costs of the organization. The costing will help the service industry in reduction of its costs through various techniques like learning curve, differential and marginal costing. Cost accounting brings benefits through determining the connection between the costs of inputs and the outputs, so by arranging the resources or costs of the service company in most profitable form it helps to bring efficiency in the operation.

The other benefits of the costing to the service industry are:

1) Benefits of Activity based costing(ABC) : As the service company uses various activities, instead of material, in operation, so by analyzing the costs of each activity and eliminating the extra movement, the costing saves costs.

2) Learning effect : Through the repeating the jobs in a service industry, the time taken per job also reduces due to experience effect. This will help the service company to gain contracts by quoting lower price.

3) Process costing : The various processes of the service company are studied under the Costing module, where concept of costing is put in and relative cost effect per job will be reduced.

4) Standard costing : Through the process of setting the standards of completing various activities, the costing would not let the cost of operation to exceed the budgeted costing. Thus, allow the service company to be in profit and would escape all loss making moments.

5) Cost calculation and price setting: The costing helps the service industry through applying various cost accounting methods like variable and absorption and have direct tracking of cost. The cause and effect implication for each cost incident is put to and the cost allocation will be made as per requirement of pricing of services.

6) Cost factoring : The costs are factored and segregated according to the requirement, variability, profitability, so that the proper return of the cost can be extracted.

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