Service costing is that part of operation costing which is used in all organisation who provide services instead of producing

of goods. For calculating the price of each service, it is very necessary to collect all the expenses relating to that services. We make a cost sheet in which we show all the cost relating to specific service. These costs are calculated on the time basis. Following are the main organisations who provide services 1. Bus, Trucks and Rail - Transport services 2. Hosting and Domain - IT Services 3. Electricity Companies - Electricity services 5. Gas and Petrol Companies - Gas and Petrol services

Service Costing Examples

1. Salary 2. Insurance 3. Road Tax 4. Licence Fees 5. Interest on Capital 6. Repairs 7. Depreciation 8. Petrol Expenses 9. IT Service Related Cost {*All companies who provide IT services must have to pay the expenses relating to IT services. Main examples are hosting and domain cost, cost of data server and other storage and power costs. }

Why Service Costing is Invaluable

With service-based costing, organizations calculate the full cost of their products and services. They propose a budget that includes not just the expected "keep the lights on" services, but also the many things clients have requested and the many good ideas their IT entrepreneurs generate for better serving the business.

In the process of developing such a budget, the managers define their businesses and their service catalogs. They forecast business volumes, both assured and speculative. Then they plan how they'll fulfill those business scenarios, defining the staff, contractors, and vendors they will need; the direct and indirect expenses they will incur; and the capital investments required. They set aside time and money for business improvements, customer relations, and innovation. And they determine their prices. From there, budget negotiations become a matter of deciding what the organization's clients will and won't buy. It shouldn't be surprising to learn that their clients step forward (without any "training" or preparation) and defend IT projects. Yes, clients defend the IT budget! And afterwards, everybody understands exactly what the IT budget does and does not pay for. Service-based costing solves the notorious problem of managing expectations, builds a perception of the value the business receives from the IT budget (or from allocations), and engenders trust through transparency. Furthermore, knowing the cost of products and services is prerequisite to any sensible resource governance (eg, portfolio management or demand management) process. Clients need to understand how much is in their "checkbooks" and what things cost before they can meaningfully manage their demands. In addition to a budget for products and services, service-based costing produces rates based on the full cost of IT products and services. These rates are the ideal benchmarks for competitive (outsourcing) comparisons. And added benefit that's of great interest to many CIOs is the impact of the process on leadership development. These organizations find that the experience of business/budget planning turns IT managers into real entrepreneurs.

What Service Costing Is

Service-based costing solves numerous governance and client relationship problems. But let's be clear about what it really takes to gain these benefits. First, although ITIL tends to focus on the services side of the business, and specifically the processes that deliver services to clients, the concept of servicebased costing applies to every nook and cranny of an IT organization. We need to know the full cost of all IT's products as well as services.

Second, and again despite ITIL's biases, the concept is not limited to products and services sold to clients. It's equally important to understand the cost of products and services sold to peers within IT. In fact, unless you account for all of your IT costs, it's impossible to calculate the real cost of clients' purchases. Let me give you an example. Infrastructure engineers spend a lot of their time tuning, repairing, enhancing, and otherwise nursing the IT infrastructure, which in turn is used to produce services like network connectivity, applications hosting, and email. But remember that infrastructure engineers also spend time on applications development teams. If you lump all the engineer costs into the cost of those services, you'll over-burden the services (making them look uncompetitive) and under-price applications. Like the infrastructure engineers, most groups in IT serve others within IT as well as clients. All costs have to be allocated accurately to produce a clear picture of what an application or service costs. Shortcuts like putting all indirect costs in pools and assigning them directly to client products and services introduce distortions, which in some cases turn out to be quite significant. Also consider that, from a leadership point of view, ignoring internal products/services makes many critical people feel like second-class citizens and misses an opportunity to ignite their entrepreneurial spirits. Services or activities, having public utilities, need to determine cost of the services or activities offered. A public utility undertaking, offering services to a community rather than manufacturing a tangible product, uses service costing. The service or function, having public utilities, covers water supply service, electricity supply service, transport service, hospital service, library service, canteen service, park service, hostel service etc. Each service is unique and needs a different accounting treatment. An intelligent selection of unit cost is required to obtain a meaningful cost comparison. A correct choice of unit cost provides correct cost analysis for decision making destined for effective cost control and reduction. Unit cost expression for a transport undertaking may be the cost per running kilometer, cost per effective kilometer, cost per tonne kilometer, or the cost per passenger kilometer. The cost per kilowatt or unit is the expression appropriate for a hydro power generating undertaking. The cost per patient, cost per patient day, cost per out-door patient, cost per minor or major operation, cost per room may be the potential latitude of an expression of cost for medical

institute. TypesOfServices The diverse nature of services offered to the public poses a difficulty to make a sharp division of services. However, services are categorised into the following four major categories on the basis of their common features.

*Transport *Supply *Welfare * Municipal services