147571
Description
Mind Map by Shahid Musthafa, updated more than 1 year ago
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Created by Shahid Musthafa
over 11 years ago
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TARGET COSTING
In Service Industry
- Characteristics of
Service Industries
- "H I P S"
- H
- HETROGENEITY
- Services mainly involves people and because people
are all different ,the service received may vary
depending upon the person who is performing it
.Standardisation is expected by the customer but it is
very difficult to maintain. For Example same quality
cannot be expected from the junior in terms of senior
- Services mainly involves people and because people
are all different ,the service received may vary
depending upon the person who is performing it
.Standardisation is expected by the customer but it is
very difficult to maintain. For Example same quality
cannot be expected from the junior in terms of senior
- HETROGENEITY
- I
- INTANGIBLE
- Unlike goods a
service cannot be
physically touched
- Unlike goods a
service cannot be
physically touched
- INTANGIBLE
- P
- PERISHABILITY
- Unused capacity
cannot be stored
for future use
- Unused capacity
cannot be stored
for future use
- PERISHABILITY
- S
- SPONTANEITY
- Unlike goods , a service is
consumed at the exact time when
it is produced .No service exists
until it is experienced by the
customers
- Unlike goods , a service is
consumed at the exact time when
it is produced .No service exists
until it is experienced by the
customers
- SPONTANEITY
- H
- "H I P S"
- Problems using target
costing in service industry
- When the service is only at the
concept stage, it is very difficult to
determine the likely sales volume and
the price that potential customers will
be prepared to pay, so it is harder to
get a realistic assessment of the
external marketplace.
- In service industries the cost is almost entirely
made up of labour. So if the costs need to be
reduced to achieve the target cost, the only
way of achieving this is to either reduce the
amount of time spent or to use lower grade
staff, both of which are likely to reduce the
value of the service and hence the revenue will
fall and so the costs must fall still further etc.
- It is not unusual in service industries for each
service to be unique as it is tailored to suit the
particular customer’s requirements. This
would mean the target costing approach
would need to be re-addressed for every
instance of the service (ie for each customer).
- When the service is only at the
concept stage, it is very difficult to
determine the likely sales volume and
the price that potential customers will
be prepared to pay, so it is harder to
get a realistic assessment of the
external marketplace.
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