Understanding Operating Costing in Service Industry
Operating costing, also known as service costing, is a method of determining costs for standardized services provided by organizations. It focuses on service provision rather than manufacturing goods. Key features include uniform service delivery, classification of costs into fixed and variable, and cost ascertainment through authentic documents. It is applicable to industries like transport, electricity, healthcare, and education. By analyzing operating costs, enterprises can set prices effectively.
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OPERATING COSTING M.VIJAYASEKARAM LECTURER IN COMMERCE S.V.C.R.GOVT DEGREE COLLEGE PALAMANER
OPERATING COSTING Operating costing is an extension and refined form of process costing. It is also more or less very similar to single or output costing. The operating costing gives more emphasis on providing services rather than the cost of manufacturing an article. The services provided may be for sale to the general public or they may be provided within an organization. The operating costing is also called as service costing, period costing or terminal costing. Service costing means rendering service to the public or to an organization for which cost is accumulated and calculated. Period costing means the costs data collected and calculated for a specific period. Terminal costing means a bus or truck of a transport undertaking chartered for a specific trip.
MEANING OF OPERATING COSTING Operating ascertainment of cost for providing a standardized service to the public or to an undertaking. costing is a process and technique of accumulating and Definition of Operating Costing ICMA, London, Operating costing is that form of operation costing which applies where standardized services are provided either by an undertaking or by a service cost center within an undertaking. Wheldon, Operating costing is actually unit costing as applied to the costing of services.
FEATURES OF OPERATING COSTING The basic features of operating costing are presented below. 1. Uniform service is provided to all the customers. 2. The costs are classified into fixed and variable. 3. The fixed and variable cost classification is necessary to ascertain the cost of service and the unit cost of service. 4. There is no physical stock of article if an undertaking renders a service. 5. If a cost center is operating for an undertaking, there is no sale of service but render the service. In other words, if a cost center is operating for public, it sells its service to the public. 6. The cost unit may be simple in certain cases or composite or compound in other cases like transport undertakings. 7. Total costs are averaged over the total amount of service rendered. 8. The costs are collected from the authentic documents like daily log sheet, operating cost sheet, boiler house cost sheet, canteen cost sheets etc. 9. Operating cost is the cost of rendering service. 10. Operating costing is the method of ascertaining costs. 11. The productive enterprises can quote prices by ascertaining cost data.
APPLICATION OF OPERATING COSTING Operating costing is applied by an organization, which provides service to the public as a whole instead of manufacturing an article, and sells the same. For example, Transport undertaking electricity, theatre, hospitals, schools and the like. Similarly, the same type of an organization or cost center renders service to production departments. For example, Electricity, powerhouse, canteen and the like. The service cost in operating cost should be find out to understand whether an organization or cost center render services to others or sell the services to the general public. If the services are sold, the operating expenses and the extent of services rendered are taken into consideration to find out the service cost. On the other hand, if the services are sold, the service expenses should be apportioned to the production department on a suitable basis. Generally, the basis may be the extent of service availed by the production departments. It may also become necessary to compare the cost of such a service with the cost of an outside service for deciding whether it is profitable to buy a service from outside rather than make the same available from within an organization.
HOW ARE SERVICES CLASSIFIED UNDER OPERATING COSTING The services may be classified into two categories under operating costing, namely Internal service and External service. Internal service refers to rendering service to the production departments within an organization. External service refers to providing services to the general public uniformly. The object of both internal service and external service is the same.
