Introduction: Costing is a typical process in each and every sector. It is a very important area to concentrate for all the sectors. Not like earlier only Manufacturing industry apply Costing, Now Service sector also very much interested in Costing of their services and various method of cost optimization and Cost control of their services. In this article I would like to discuss about the Costing for Service sector for present scenario.
1. Role of Service Sector in Indian Economy: Role of Service sector contribution in Indian Economy is gradually increasing over last 2 decade. The contribution of the services sector to the Indian economy has been very vital. This sector contributed 55.2 per cent share in gross domestic product (GDP), growing by 10 per cent annually, contributing to about a quarter of total employment, accounting for a high share in foreign direct investment (FDI) inflows and over one-third of total exports, and recording very fast (27.4 per cent) export growth through the first half of 2010-11. Service Sector includes the following major industries
a. Transport & Logistics
d. Retail Sector
e. Health Services
h. Software Services
i. Construction, Real Estate & Allied Services
j. Banking, Finance & Insurance
2. Scope of Costing in Service sector: Costing scope in these industries are very broad and quite interesting, because in manufacturing sector having very standard set of process of manufacturing the product and applicable costing technique and methods are very similar for the selected product and industry. But Service sector has different set of process for each activity and also it will differ from company to company. For example in Transport & Logistic sector every company having their different mode of operation based on their set up of the business, like this in each sector has the various process differences. Due to this process, costing in service sector also has very large scope.
3. Coverage of Service sector under Costing: According to the Cost Accounting Records & Cost Audit rules 2011 recommending the uniform Cost accounting standards by ICWAI. This rule will cover the service sector also in Costing area. More than this rule, for making most of the management decision like, Fixing price, margin and profitability etc. costing is an effective tool.
4. Cost Accounting Standards for Service sector: For service sectors following Costing accounting standards are useful for costing
a. CAS-1 - Classification of Cost
b. CAS-3 - Overheads
c. CAS-5 - Average (equalized) Cost of Transportation
d. CAS-7 - Employee Cost
e. CAS-8 - Cost of Utilities
f. CAS-10 - Direct Expenses
g. CAS-11 - Administrative Overheads
h. CAS-12 - Repairs And Maintenance Cost
i. CAS-13 - Cost of Service Cost Centre
5. Benefits of Costing of Service sector: Costing is a very important tool for any kind of business entity. For several management decisions like Price fixation, Margin, profitable service category and Break even analysis costing is the basic information.
I would like to conclude the basic information about the Service sector costing in this part-1, further parts I want to discuss about the specific costing method using by the each industry under service sectors. I hope this information and further part will be helpful to professional and students.
CMA Ramesh Krishnan