- This topic has 5 replies, 2 voices, and was last updated 5 years ago by
.
- Posts
Dear sir,
Please guide me about the following:
Target costing is difficult to implement in service industry due to characteristics of services.
Q. 1 How intangibility makes it difficult to implement target costing in service industry?
Q. 2 How hetrogeniety makes it difficult to implement target costing in service industry?
Q. 3 How simultaniety makes it difficult to implement target costing in service industry?Waiting for your kind response.
This is actually far more likely to be asked in Paper PM than in Paper MA. Paper PM examines target costing in detail, whereas Paper MA only requires knowledge of the basic idea.
However…..
Think of a dentist as an example of a service industry.
– There is no specific ‘product’ that the costs can be easily measured for (the work is intangible).
– There is no standard job – for example, every filling is different, some are very quick and some take longer (they are heterogeneous)
– The work is done and the service received at the same time – you can’t measure the costs in advance (it is simultaneous).
Thank u so much sir for your kind reply. Just one confusion regarding intangibility is:
There is no specific product that the cost can easily be measured for.
Sir.. If there is no physical product then just material cost will not incur normly. But still we can easily charge cost of labour for time taken by service and overheads cost by some mean.
For example:
A consultant provides consultancy so he can easily charge cost of his time and overhead cost by some way..
Please explain a little more this point.
I’ll be really thankful to u.For some services, target costing is possible (such as the consultancy work you describe). However it is more difficult for some services (such as a dentist because you do not know what the costs involved will be in advance).
Nobody is saying that it is impossible to use target costing for services, just that it is more difficult.
- The topic ‘Target costing’ is closed to new replies.