This is a method of costing employed to ascertain the cost of providing a service e.g. road transport undertakings, electricity supply, canteen services, airways services etc.
In general, the unit of cost in service costing may be predetermined as follows:
- Service Cost Unit.
- Electricity supply Kilowatt-hours
- Hospitals Patient-days
- Canteen services A plate of a meal served
- Gas supply Cylinder
- Colleges Full time equivalent student
In some cases, composite cost units may be applied e.g. in transport undertakings the cost unit may be cost per passenger per kilometer or cost per ton per kilometer; in
hotels, the composite cost unit may be cost per occupied beds per night etc.
Whatever cost unit is decided upon, the calculation of cost per unit is done in a similar fashion
- Fixed cost-these are normally expressed on a per annum basis.
- Operating/running costs – are all variable costs.
- Maintenance costs- may be semi variable.