Service Costing form of Operational Costing in Accounting

Service costing is that form of operational costing which applies where standardized services are 

provided either by an undertaking or by a service cost centre with in an undertaking. This method may be used where service is not completely standardized, but where it is convenient to regard it as such and to calculate average cost per period in relation to the standardized unit of measurement. Thus it is the cost of producing and maintaining a service. It is a method of costing applied to undertaking which provides service rather than production of commodities. These services may be internally used e.g., canteen, delivery van etc. or may be rendered to the public as is done by State transport Corporation, Hospital, Electricity, Gas companies etc. in both the cases operating costs are required to be ascertained. The operating costs are generally period Costs. The expenses are accumulated for a period and they are related to the quantum of service rendered during the period. In certain cases, however, the operating cost can be terminal cost e.g., when a bus chartered out for a specific trip, the cost of such trip is worked out treating it as a specific job.

Costs are classified into the following three heads:

1. Standing or Fixed charges – These charges are incurred in spite of the kilometers run e.g., salary of operating manager and supervisor etc., insurance, motor vehicle tax, general supervision, interest on capital etc.
2. Maintenance Charges – Semi- variable expenses are include in this group e.g., repair and painting, overheads etc.
3. Operating and Running Charges – These charges vary more or less in direct proportion to kilometers and include petrol, oil, grease etc., wages of driver, conductor, attendant etc. if the payment is related to time or distance of trips, commission of taking etc. in short, all the variable charges of running vehicle are include in this Group. 

The service to be costed could either be:

Transport Services – Tramways, Railways, bus transport
Supply Services – Gas Supply, Electricity Supply, water supply
Welfare Supplies – Hospital, Canteen, Libraries
Municipal Services – Street light, Road Maintenance Etc.