Page 8 - DCOM206_COST_ACCOUNTING_II

Unit 1: Service Costing

1.2.1 Nature and Characteristics of Operating Costing Notes

The nature and characteristics of operating costing are as follows:
(i) Operating costing method is related to provide various types of services to customers,
(ii) Costs are generally computed period-wise and order-wise,

(iii) In operating costing, standing or fixed, maintenance and running charges are calculated,
(iv) The services of a industry or organisation may be sold to the public or may be used within
the organisation, and

(v) The demand for the services of enterprises or organisations or industries adopting operating
cost method for costing fluctuates.

1.3 Users of Service Costing

Service or Operating Costing is used both by service organisations and by departments within
organisations rendering services to other departments. These are given below:
Service Organisations: Organisations which are engaged in the business of rendering services
to outsiders with the view to earning profit are known as service organisations.

Example: Service organisations include Power generation and distribution firm, nursing
homes, transport firms, educational institutions, management consultancy firms, accounting
firms, shipping firms, airlines etc.

Internal Service Departments: These are departments within organisations render services to
the production department and also to other departments.

Example: Internal services departments include hospital, crèche, canteen, boiler house
which produces steam for production department, computer services department, captive power
generation unit, transport department operating vehicles for transporting staff, inputs and
finished goods, water supply and maintenance services etc.


Caselet Litigation Work

ua and Associates is a law firm specialising in carrying out litigation work for
clients. It has 25 professionals who work for clients (5 partners and 20 associates).
DThe average budgeted total compensation per professional for 1999 is ` 1,04,000.
Each professional is budgeted to have 1,600 billable hours to clients in 1999. Dua and
Associates is a highly respected firm and Al professionals work for clients to their maximum
1,600 billable hours. All professional labour costs are traceable to jobs on a per hour basis.
The budgeted indirect cost (legal support) in 1999 is ` 22,00,000. The indirect costs are
allocated to the jobs using professional labour hours as the allocation base. In this example
for ascertaining the cost of Job Company consider single direct cost rate (i.e. Professional
labour) and single indirect cost rate.
Source: http://220.227.161.86/18859sm_finalnew_cp7.pdf

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