Page 235 - F2 - MA Integrated Workbook STUDENT 2018-19

Service and operation costing

Service and operation costing

Service costing is a form of continuous operation costing. The output from a service
industry differs from manufacturing for the following four reasons:

 Intangibility – the output is in the form of ‘performance’ rather than tangible or
touchable goods or products.

 Heterogeneity – the nature and standard of the service will be variable due to
the high human input.

 Simultaneous production and consumption – the service that you require cannot
be inspected in advance of receiving it.

 Perishability – the services that you require cannot be stored.

Test your understanding 1

Which of the following are characteristics of service organisations? Select all
that apply.

Tick

A low incidence of work in progress at the end of a period

Difficulty in identifying and measuring objectives

A focus on contribution

The use of composite cost units

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