Service Firm Costing Overview
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Service Firm Costing Overview

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Questions and Answers

What is a primary reason service costs are often not integrated into the accounting ledger?

  • Service costs are always recorded in cost of goods sold.
  • Service firms do not track any expenses.
  • Service costs cannot influence profitability.
  • Service costs are hidden in operating expenses. (correct)

    • Which costing system is most appropriate for heterogeneous services?

  • Process costing
  • Hybrid costing
  • Job costing (correct)
  • ABC costing

    • Under AASB 102, which type of service firms need to account for work-in-process?

  • Firms that complete all jobs within one accounting period
  • Firms involved in long-term projects like engineering or consulting (correct)
  • Firms with no inventory
  • Firms with standardized service offerings

    • Which of the following is NOT a purpose of understanding service costs?

    <p>Determining customer satisfaction</p> Signup and view all the answers

    What are accumulated costs of jobs in service firms primarily used for?

    <p>Tracking project expenses not yet billed to clients</p> Signup and view all the answers

    What is the main focus of service firms compared to manufacturing firms?

    <p>Creating intangible experiences</p> Signup and view all the answers

    What aspect must be analyzed before the implementation of Activity Based Costing (ABC)?

    <p>Cost-benefit analysis</p> Signup and view all the answers

    Which of the following is NOT one of the four hierarchies of cost in Activity Based Costing?

    <p>Market cost</p> Signup and view all the answers

    How do service firms differ from manufacturing firms in terms of output?

    <p>Service firms produce more diverse outputs</p> Signup and view all the answers

    Why is it necessary to revisit the learning objectives (LOs) after completing a unit?

    <p>To ensure understanding of the required competencies</p> Signup and view all the answers

    Which statement accurately describes the consumption of services in comparison to manufactured goods?

    <p>Services are consumed at the moment of production</p> Signup and view all the answers

    What is one significant challenge of applying traditional costing systems to service firms?

    <p>Inability to track intangible benefits</p> Signup and view all the answers

    What is one of the key features of service firms regarding their customer interactions?

    <p>Customer interaction is essential for service delivery</p> Signup and view all the answers

    What distinguishes service costs from manufacturing costs regarding work in progress?

    <p>Service costs have no leftover services once completed.</p> Signup and view all the answers

    Which classification of service costs helps managers assess which costs will fluctuate with activity levels?

    <p>Variable and fixed costs</p> Signup and view all the answers

    In terms of cost objects, how are direct costs different from indirect costs?

    <p>Direct costs are traced while indirect costs are allocated.</p> Signup and view all the answers

    What classification of cost indicates whether a manager has control over it?

    <p>Controllable costs</p> Signup and view all the answers

    How are upstream and downstream costs related in a value chain?

    <p>Upstream costs relate to initial service delivery activities.</p> Signup and view all the answers

    Which costing system is primarily used for specialized services that cater to individual customer needs?

    <p>Job costing</p> Signup and view all the answers

    What aspect of service delivery highlights the simultaneity of production and consumption?

    <p>Service perishability</p> Signup and view all the answers

    Which factor does NOT categorize service costs?

    <p>Geographical location of service</p> Signup and view all the answers

    Which costing system is primarily used when each client has specific loan requirements?

    <p>Job costing</p> Signup and view all the answers

    What is the main characteristic of services that use process costing?

    <p>They are produced in bulk with little variation.</p> Signup and view all the answers

    Why is Activity Based Costing (ABC) suitable for service firms?

    <p>It analyzes overhead costs in detail.</p> Signup and view all the answers

    In hybrid costing, what does the term 'non-customized' refer to?

    <p>Services with a blend of customized and standardized elements.</p> Signup and view all the answers

    What challenge does process costing present in mass services?

    <p>It averages the costs, leading to inaccuracies.</p> Signup and view all the answers

    What is one way that service cost calculations help increase profitability?

    <p>By identifying the mix of services to maximize profit.</p> Signup and view all the answers

    What role does overhead cost play in service costing?

    <p>It significantly affects cost estimation in mass-produced services.</p> Signup and view all the answers

    What is a key benefit of using the four hierarchies of cost in Activity Based Costing?

    <p>Allows detailed allocation of overhead costs.</p> Signup and view all the answers

    Study Notes

    Service Firm Costing

    • Service firms provide essential services in most economies.
    • Service costing is crucial for enhancing customer and shareholder value.
    • Service firms differ from manufacturing firms in terms of output tangibility, output homogeneity, production and simultaneous consumption of service, and the perishable nature of services.
    • Cost Classification:
      • Behavior: Variable Costs and Fixed Costs
      • Traceability: Direct Costs and Indirect Costs
      • Controllability: Controllable Costs and Uncontrollable Costs
      • Value Chain: Upstream and Downstream Costs
    • Costing Systems for Services:
      • Job Costing: Used for customer-based, heterogeneous professional services.
      • Process Costing: Used for mass-produced, homogeneous services.
      • Hybrid Costing: Used for services with combined elements of job and process costing.
      • Activity-Based Costing (ABC): Used for detailed cost analysis of services, especially in the presence of significant overhead costs.
      • ABC uses four hierarchies of cost: unit, batch, product, and facility.
    • Key Considerations for Service Costing:
      • No inventory to value, so the influence of external reporting requirements is less relevant.
      • Individual service costs may not always be accumulated separately in the general ledger.
      • Costs are typically hidden in operating expenses, not in cost of goods sold (COGS).
      • Service costs may not be integrated into the accounting ledger, which makes concepts like overhead over/under-absorption less relevant.
      • Some service firms, like law firms, may have work-in-progress.
    • Usefulness of Service Costs:
      • Assessing service profitability.
      • Deciding which services to produce, refine, or withdraw.
      • Setting service fees and planning and controlling costs.

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    Related Documents

    Unit 6 - Service Costing PDF

    Description

    Explore the essential concepts of costing in service firms. This quiz covers cost classification, costing systems, and the unique characteristics that differentiate service firms from manufacturing firms. Enhance your understanding of how effective costing can add value for customers and shareholders.

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