Question

Service Industry Costing: Explain why costing methods used in the service industry are different from those used in the manufacturing or merchandising industries.

Answer 1

Manufacturers produce tangible goods i.e. physical goods which customers can see and touch; while service firm produces intangible goods such as training, consultancy, or maintenance. Manufacturers produce goods for stock, with inventory levels with it's alignment to focus the forecasts of market demand. On contrary unlike manufacturers the service firm do not hold inventory; they create a service when a client requires it. Due to the difference in their requirements the costing methods used in the service industry are not the same as used in the manufacturing or merchandising industries