Kế toán - Kiểm toán - Chapter 6: Service costing

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  1. Chapter 6 Service Costing Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  2. Service organisations s organisations 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 Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 2 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  3. Service vs. manufacturing businesses s Most services are intangible s Service outputs are often heterogeneous s Services are often consumed as they are produced s Services are perishable and cannot be stored Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 3 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  4. Other aspects of services s Retailers and wholesalers are part of the service sector ÙDifferent characteristics to most service firms ÙProvide tangible goods as well as services s Services are produced outside the service sector ÙMost manufacturing firms provide a service component to their product ÙUpstream and downstream parts of the value chain may produce services Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 4 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  5. Cost classifications in service firms Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 5 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  6. The value chain in service firms continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 6 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  7. The value chain in service firms s Upstream activities and costs Ù Only large firms may have R&D and design activities s Downstream activities and costs Ù Marketing and customer support s Production and delivery activities and costs Ù Production and delivery may occur simultaneously Ù Direct labour may dominate and material not significant s Upstream and downstream costs may be regarded as overhead costs for service costing purposes Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 7 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  8. The value chain of retailers and wholesalers s Upstream activities and costs ÙR&D and design unlikely to be relevant ÙPurchasing activities important s Production activities and cost ÙThe sales transaction and often distribution included s Downstream activities and cost ÙMarketing activities, delivery and customer support important Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 8 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  9. Types of service entities Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 9 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  10. Professional services s Staffed by professional staff who provide personal services and serve relatively few customers s The front office is more important than the back office s Examples: medical, legal, accounting, management consulting, and architectural businesses Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 10 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  11. Mass services s Involve many customers, each one requiring limited staff time and limited customisation s Staff are mainly non-professional s Most of the value is in the back office, not the front office s Examples: bus and train companies, airline companies, post offices, electricity supplies, telecommunications companies, public service organisations Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 11 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  12. Service shops s Fit between professional and mass service businesses in terms of number of customers, staff time and degree of customisation s Examples: hotel chains, banks, cafés and restaurants, print shops and car repair workshops Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 12 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  13. Costing systems for service entities Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 13 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  14. Job costing for professional service firms s Professional service firms have limited material or equipment, produce no inventories s Professional firms suit a job costing environment ÙFew clients and jobs ÙThe production process for each client is unique ÙLabour cost can be traced directly to individual services Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 14 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  15. Process costing for (some) mass service firms s Services are produced in large quantities, so individual tracking of costs is not feasible s Production processes are repetitive, limited room for customisation s Various services consume similar resources s Substantial indirect labour s Costs tracked directly to production processes s Process costing will not provide accurate tracking of costs to services, where the scope for discretion in service delivery is high Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 15 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  16. Hybrid costing systems s Suitable for some service shops and some mass service entities s Varying degrees of customisation, standardisation of processes, and traceability of costs s Costing systems will vary on a continuum from job costing to process costing Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 16 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  17. Activity-based costing for services s Service entities often have high direct labour cost that can be directly traced to services s Overhead costs can be allocated to services using cost drivers s The greater the proportion of overhead costs, the greater the potential for inaccurate service costs, and more benefits may be gained from activity-based costing Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 17 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  18. Case study: Adelaide bank s Job costing - investment advisory services ÙProfessional labour costs vTraced to jobs using an hourly rate vHourly rate based on annual salary plus on-costs, divided by billable hours ÙOverhead costs vWill include upstream and downstream costs vIdentify the overhead cost driver, often professional labour vPredetermined overhead rate per dollar of professional labour continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 18 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  19. Case study: Adelaide bank s Why estimate the cost of investment advisory services? ÙA basis for setting fees ÙTo assess the profitability of each service ÙTo determine which service to promote, refine or withdraw ÙTo control costs continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 19 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  20. Case study: Adelaide bank s Process costing—ATM services ÙThree processes vThe provision of ATM service facilities vInitial transaction processing by front-end processor vBack-end processing ÙFew direct costs of the ATM transaction ÙSubstantial indirect labour costs in front-end and back-end processing ÙSubstantial equipment-related costs ÙDegree of completion and transferred-in costs not relevant continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 20 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  21. Case study: Adelaide bank s Why estimate ATM services? ÙTo set fees ÙAssess the profit or loss associated with each transaction ÙInformation for control s The cost per transaction should be used with caution in decision making ÙIncludes a high proportion of indirect costs which do not behave on a per-unit basis continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 21 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  22. Case study: Adelaide bank s Hybrid costing ÙSome services are a mix of standardised processes and customised features s Which costs should be included in service costs ÙUpstream and downstream costs to suit managers’ decision making needs s Costing systems may cost only some services, based on decision making needs Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 22 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  23. When do firms estimate service costs? s No external reporting requirements to estimate individual service costs s Service costing systems will be used where benefits exceed costs s Cost and benefits influenced by ÙComplexity of the costing system ÙAccuracy of the service cost information ÙRelevance of service cost information to the firms’ strategy and competitive environment Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 23 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  24. Factors affecting the decision to implement service costing Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 24 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  25. Service costing in practice s Job costing is common in professional service firms and some service shops s Costing systems in service firms tend to focus on the costs of responsibility centres s Firms may choose to cost only some services to support management decisions s The benefits from a costing system must exceed the costs of setting up the system Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 25 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  26. Flow of costs in service firms s No inventory to value, so external reporting requirements not relevant s Individual service costs are usually not accumulated in the general ledger s Costs are shown as line item operating expenses, not COGS, in statements of financial performance Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 26 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  27. Flow of costs in service firms s Service costs not usually integrated into the accounting ledger, so overapplied or underapplied overhead not relevant s Some service firms do need to account for work-in-progress (AASB1019) ÙConsist of accumulated costs of jobs, where fees are not realised ÙOnly production costs can be included Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 27 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  28. Costing in retail and wholesale businesses s Two distinct aspects ÙTangible goods are sold ÙA wide range of goods s Inventories and COGS are recorded in the accounting ledger s Inventories must be valued at the end of an accounting period at the lower of cost or net realisable value continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 28 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  29. Costing in retail and wholesale businesses s Cost of good sold ÙCost of beginning inventory + purchases – cost of ending inventory s How may managers use COGS? ÙAssess the profitability of various product lines and responsibility centres ÙGuide product pricing s Upstream and downstream costs may be included to provide a more comprehensive estimate of COGS for decision making continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 29 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
  30. Costing in retail and wholesale businesses s A range of services may also be provided to customers as part of the sales transaction and at other points on the value chain s For accounting purposes, these costs are expensed in the current accounting period s For management decisions, these service costs may need to be identified to help manage resources Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 30 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith