Chapter 9 Cost Accounting for Service Businesses and the Balanced Scorecard
Learning Objectives LO1 Perform job order costing for service businesses. LO2 Prepare budgets for service businesses. LO3 Apply activity-based costing for a service firm. LO4 Compare the results of cost allocations using simplified costing versus activity- based costing. LO5 Prepare a balanced scorecard for various business entities.
Characteristics of a Service Business • Typically have little or no inventory. • Labor costs often comprise 75% or more of the total costs. • Approximately 90% of jobs created in the U.S. in the past 20 year have been service industries.
Job Order Costing for Service Businesses • When the amount of complexity of service provided varies from customer to customer, a job order costing system should be used.
Job Cost Sheet • The basic document used to accumulate costs for a service business. • Will indicate labor time, labor rate, and the total cost for each labor category worked. • Other direct costs may be traced to the individual jobs.
Budgeting for Service Businesses • Revenue budget. • Labor budget. • Overhead budget. • Other direct expenses budget. • Budgeted income statement.
Activity-Based Costing in a Service Firm • Firms that use activity-based costing attempt to shift as many costs as possible out of the indirect cost pool and into direct cost pools that can be specifically traced to individual jobs. • Remaining costs are separated into homogeneous cost pools and allocated to individual jobs via separate allocation bases for each pool.
Activity-Based Costing vs. Simplified Costing • Activity-based costing is worthwhile to implement when different jobs use resources in different proportions. • Should be a cost/benefit decision as to whether to implement a more sophisticated costing system.
The Four Categories of a Balanced Scorecard • Financial • Customer • Internal Business Processes • Learning and Growth
Financial • Return on Investment (ROI) • Operating Income • Gross Margin Percentage • Revenue from New Products
Customer • Number of New Customers • Market Share • Percentage of Products Returned • Customer Satisfaction Surveys
Internal Business Processes • Percentage of On-Time Deliveries • Percentage of Defect-Free Units Produced • Time Taken to Replace Defective Products • Time From Receipt of Order to Shipment
Learning and Growth • Employee Turnover • Number of Employee suggestions • Percentage of Employees Trained in New Processes • Percentage of Compensation Based on Employee/Team Performance