Service Industries

Question 1

What is service costing?

Answer 1

organisation providing a service rather than a tangible product

Question 2

What 4 characteristics makes service different from product?

Answer 2

Simultanteity- production and consumption happen at the same time
Heterogeneity- service will tend to differ slightly each time it is undertaken
Intangibility- the service will not be a physical product
Perishability- a service cannot be stored up or purchased in bulk
More costs tend to be overheads!

Question 3

How do you calculate for example the cost per kilometer travelled on a bus route?

Answer 3

Use OAR- budgeted overheads/budgeted kilometers travelled to get cost per kilometer
the take the total fixed costs and divide it by the kilometers travelled and number of vehicles used =to find fixed cost per kilometer
then add variable cost per km, fixed cost per km, the OAR to get total service costs