Kế toán, kiểm toán - Chapter 6: Service costing

Chapter 6Service Costing1Service organisationsorganisations 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 2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithService vs. manufacturing businessesMost services are intangibleService outputs are often heterogeneousServices are often consumed as they are producedServices are perishable and cannot be stored3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOther aspects of servicesRetailers and wholesalers are part of the service sectorDifferent characteristics to most service firmsProvide tangible goods as well as servicesServices are produced outside the service sectorMost manufacturing firms provide a service component to their productUpstream and downstream parts of the value chain may produce services4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost classifications in service firms5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithThe value chain in service firmscontinued6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithThe value chain in service firmsUpstream activities and costsOnly large firms may have R&D and design activitiesDownstream activities and costsMarketing and customer supportProduction and delivery activities and costsProduction and delivery may occur simultaneouslyDirect labour may dominate and material not significantUpstream and downstream costs may be regarded as overhead costs for service costing purposes7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithThe value chain of retailers and wholesalersUpstream activities and costsR&D and design unlikely to be relevantPurchasing activities importantProduction activities and cost The sales transaction and often distribution includedDownstream activities and costMarketing activities, delivery and customer support important8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTypes of service entities9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProfessional servicesStaffed by professional staff who provide personal services and serve relatively few customersThe front office is more important than the back officeExamples: medical, legal, accounting, management consulting, and architectural businesses10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithMass servicesInvolve many customers, each one requiring limited staff time and limited customisationStaff are mainly non-professionalMost of the value is in the back office, not the front officeExamples: bus and train companies, airline companies, post offices, electricity supplies, telecommunications companies, public service organisations11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithService shopsFit between professional and mass service businesses in terms of number of customers, staff time and degree of customisationExamples: hotel chains, banks, cafés and restaurants, print shops and car repair workshops12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosting systems for service entities13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithJob costing for professional service firmsProfessional service firms have limited material or equipment, produce no inventoriesProfessional firms suit a job costing environmentFew clients and jobsThe production process for each client is uniqueLabour cost can be traced directly to individual services14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing for (some) mass service firmsServices are produced in large quantities, so individual tracking of costs is not feasibleProduction processes are repetitive, limited room for customisationVarious services consume similar resourcesSubstantial indirect labourCosts tracked directly to production processesProcess costing will not provide accurate tracking of costs to services, where the scope for discretion in service delivery is high15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithHybrid costing systemsSuitable for some service shops and some mass service entitiesVarying degrees of customisation, standardisation of processes, and traceability of costs Costing systems will vary on a continuum from job costing to process costing16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithActivity-based costing for servicesService entities often have high direct labour cost that can be directly traced to services Overhead costs can be allocated to services using cost driversThe greater the proportion of overhead costs, the greater the potential for inaccurate service costs, and more benefits may be gained from activity-based costing17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCase study: Adelaide bankJob costing - investment advisory services Professional labour costsTraced to jobs using an hourly rateHourly rate based on annual salary plus on-costs, divided by billable hoursOverhead costsWill include upstream and downstream costsIdentify the overhead cost driver, often professional labourPredetermined overhead rate per dollar of professional labourcontinued18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCase study: Adelaide bankWhy estimate the cost of investment advisory services?A basis for setting feesTo assess the profitability of each serviceTo determine which service to promote, refine or withdrawTo control costscontinued19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCase study: Adelaide bankProcess costing—ATM servicesThree processesThe provision of ATM service facilitiesInitial transaction processing by front-end processorBack-end processing Few direct costs of the ATM transactionSubstantial indirect labour costs in front-end and back-end processingSubstantial equipment-related costsDegree of completion and transferred-in costs not relevantcontinued20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCase study: Adelaide bankWhy estimate ATM services?To set fees Assess the profit or loss associated with each transactionInformation for controlThe cost per transaction should be used with caution in decision makingIncludes a high proportion of indirect costs which do not behave on a per-unit basiscontinued21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCase study: Adelaide bankHybrid costingSome services are a mix of standardised processes and customised features Which costs should be included in service costsUpstream and downstream costs to suit managers’ decision making needsCosting systems may cost only some services, based on decision making needs22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithWhen do firms estimate service costs?No external reporting requirements to estimate individual service costsService costing systems will be used where benefits exceed costsCost and benefits influenced by Complexity of the costing systemAccuracy of the service cost informationRelevance of service cost information to the firms’ strategy and competitive environment23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFactors affecting the decision to implement service costing24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithService costing in practiceJob costing is common in professional service firms and some service shopsCosting systems in service firms tend to focus on the costs of responsibility centresFirms may choose to cost only some services to support management decisionsThe benefits from a costing system must exceed the costs of setting up the system25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFlow of costs in service firmsNo inventory to value, so external reporting requirements not relevantIndividual service costs are usually not accumulated in the general ledgerCosts are shown as line item operating expenses, not COGS, in statements of financial performance26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFlow of costs in service firmsService costs not usually integrated into the accounting ledger, so overapplied or underapplied overhead not relevantSome service firms do need to account for work-in-progress (AASB1019)Consist of accumulated costs of jobs, where fees are not realisedOnly production costs can be included27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosting in retail and wholesale businessesTwo distinct aspectsTangible goods are soldA wide range of goodsInventories and COGS are recorded in the accounting ledgerInventories must be valued at the end of an accounting period at the lower of cost or net realisable valuecontinued28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosting in retail and wholesale businessesCost of good soldCost of beginning inventory + purchases – cost of ending inventoryHow may managers use COGS?Assess the profitability of various product lines and responsibility centresGuide product pricingUpstream and downstream costs may be included to provide a more comprehensive estimate of COGS for decision makingcontinued29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosting in retail and wholesale businessesA range of services may also be provided to customers as part of the sales transaction and at other points on the value chainFor accounting purposes, these costs are expensed in the current accounting periodFor management decisions, these service costs may need to be identified to help manage resources30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith