Service Costing

Service Costing – Meaning

Service costing refers to the costing procedure used for determining the cost per unit of service rendered. The term service costing is defined as the cost of specific services and function. For example- maintenance, personnel. Canteen etc. These may be called as services department, centers, or functions. A service costing is a method to calculate the cost of services. At the end of specified period, the cost of operating a service center grouped under suitable headings. To find out the cost per unit of services the department divided the aggregate cost by the quantity of services rendered during a specified period. The cost is classified into the variable and fixed cost. Under the service costing, costs are ascertained at the end of the specified period.

The conversion of basic of material into services involves many stages and process. Under the service costing, valuation of work-in- progress comparatively easy in relation to other types. Services organizations only engaged in providing services to the public. They do not produce any article/ tangible goods. The service organizations engaged in providing the variety of services so it is difficult to provide a common cost per unit.  It differs from organization to organization.

Where is it used?

Service costing is used by service organizations and departments within organizations rendering services to others department.

Services organizations: – Service organizations are those organizations which are engaged in the rendering of services to the public to earn profits. Examples of such organizations are hotels, transport firms, power generations and distributions firm, educational institutions, consultancy firms- accounting and management, law, airlines, and shipping.

Internal services: – Departments those provide the services to the production as well as to other departments. For Example- hospital, canteen, captive power generation, water supply, maintenance service and boiler house.

The below is list of cost per unit used by different groups of service –

Types of services organizations Cost unit



Water supply

Boiler house

Power generation and distributions( electricity board)

Road maintenance

Passengers transportations( bus, railways)

Goods transport ( public carriers, goods trains, trucks, etc,)

Computer departments

Per room per day bed nights, etc

Per patience-per bed,  per operation

Per meal served, per number of staffs

Per kiloliters

Per Kg of steam supplied

Per kilowatt hour

Per kilometre road maintained

Per passengers- km

Per tonne-km- quintal-km

Per computer time provided to user departments

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