Lecture Management accounting: An Australian perspective: Chapter 6 - Kim Langfield-Smith

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Lecture Management accounting: An Australian perspective - Chapter 6 introduce the service costing. After studying this chapter you will be able to understand what are service organisations? Cost classifications in service organisations.

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Nội dung Text: Lecture Management accounting: An Australian perspective: Chapter 6 - Kim Langfield-Smith

Chapter 6 Service Costing Copyright 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
Service organisations  …organisations that deliver help, utility or care, providing an experience, information or other intellectual content where the majority of the value is intangible rather than residing in any physical products Copyright ª 2003 McGrawHill Australia Pty Ltd, 2
Service vs. manufacturing businesses  Most services are intangible  Service outputs are often heterogeneous  Services are often consumed as they are produced  Services are perishable and cannot be stored Copyright ª 2003 McGrawHill Australia Pty Ltd, 3
Other aspects of services  Retailers and wholesalers are part of the service sector Different characteristics to most service firms Provide tangible goods as well as services  Services are produced outside the service sector Most manufacturing firms provide a service component to their product Upstream and downstream parts of the value chain may produce services Copyright ª 2003 McGrawHill Australia Pty Ltd, 4
Cost classifications in service firms Copyright ª 2003 McGrawHill Australia Pty Ltd, 5
The value chain in service firms continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 6
The value chain in service firms  Upstream activities and costs Only large firms may have R&D and design activities  Downstream activities and costs Marketing and customer support  Production and delivery activities and costs Production and delivery may occur simultaneously Direct labour may dominate and material not significant  Upstream and downstream costs may be regarded as overhead costs for service costing purposes Copyright ª 2003 McGrawHill Australia Pty Ltd, 7
The value chain of retailers and wholesalers  Upstream activities and costs R&D and design unlikely to be relevant Purchasing activities important  Production activities and cost The sales transaction and often distribution included  Downstream activities and cost Marketing activities, delivery and customer support important Copyright ª 2003 McGrawHill Australia Pty Ltd, 8
Types of service entities Copyright ª 2003 McGrawHill Australia Pty Ltd, 9
Professional services  Staffed by professional staff who provide personal services and serve relatively few customers  The front office is more important than the back office  Examples: medical, legal, accounting, management consulting, and architectural businesses Copyright ª 2003 McGrawHill Australia Pty Ltd, 10
Mass services  Involve many customers, each one requiring limited staff time and limited customisation  Staff are mainly nonprofessional  Most of the value is in the back office, not the front office  Examples: bus and train companies, airline companies, post offices, electricity supplies, telecommunications companies, public service organisations Copyright ª 2003 McGrawHill Australia Pty Ltd, 11
Service shops  Fit between professional and mass service businesses in terms of number of customers, staff time and degree of customisation  Examples: hotel chains, banks, cafés and restaurants, print shops and car repair workshops Copyright ª 2003 McGrawHill Australia Pty Ltd, 12
Costing systems for service entities Copyright ª 2003 McGrawHill Australia Pty Ltd, 13
Job costing for professional service firms  Professional service firms have limited material or equipment, produce no inventories  Professional firms suit a job costing environment Few clients and jobs The production process for each client is unique Labour cost can be traced directly to individual services Copyright ª 2003 McGrawHill Australia Pty Ltd, 14
Process costing for (some) mass service firms  Services are produced in large quantities, so individual tracking of costs is not feasible  Production processes are repetitive, limited room for customisation  Various services consume similar resources  Substantial indirect labour  Costs tracked directly to production processes  Process costing will not provide accurate tracking of costs to services, where the scope for discretion in service delivery is high Copyright ª 2003 McGrawHill Australia Pty Ltd, 15
Hybrid costing systems  Suitable for some service shops and some mass service entities  Varying degrees of customisation, standardisation of processes, and traceability of costs  Costing systems will vary on a continuum from job costing to process costing Copyright ª 2003 McGrawHill Australia Pty Ltd, 16
Activity-based costing for services  Service entities often have high direct labour cost that can be directly traced to services  Overhead costs can be allocated to services using cost drivers  The greater the proportion of overhead costs, the greater the potential for inaccurate service costs, and more benefits may be gained from activitybased costing Copyright ª 2003 McGrawHill Australia Pty Ltd, 17
Case study: Adelaide bank  Job costing investment advisory services Professional labour costs Traced to jobs using an hourly rate Hourly rate based on annual salary plus oncosts, divided by billable hours Overhead costs Will include upstream and downstream costs Identify the overhead cost driver, often professional labour Predetermined overhead rate per dollar of professional labour continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 18
Case study: Adelaide bank  Why estimate the cost of investment advisory services? A basis for setting fees To assess the profitability of each service To determine which service to promote, refine or withdraw To control costs continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 19
Case study: Adelaide bank  Process costing—ATM services Three processes The provision of ATM service facilities Initial transaction processing by frontend processor Backend processing Few direct costs of the ATM transaction Substantial indirect labour costs in frontend and backend processing Substantial equipmentrelated costs Degree of completion and transferredin costs not relevant continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 20