FINANCIAL PLANNING AND CONTROL IN A SERVICE COMPANY
In our previous discussions, we keep on talking about financial planning, budgets and control but in a context of a manufacturing concern. Manufacturing, meaning you are going to a process to come up with a tangible end product. Today I will present to you relatively the same topic but in a service business setting. Internationally, service business are believed to represent higher percentage of US jobs and GDP and been grown rapidly as the time goes by. The company now know what the varieties of services that they can provide. Nowadays, outsourcing is popular to reduce costs. Why do we have to segregate revenue?
We capture revenue by key element or activity because it is essential to being able to understand what is happening in each individual business and to allow sorting and combining of data into useful information available in analysis. Two Classifications of Costs
Product costs otherwise known as inventoriable costs, manufacturing costs, factory costs. Period costs are expenses in a period of time
Manufacturing costing techniques not applicable to service
Remember the Cost Volume Profit analysis, wherein you have to identify the fixed and variable component of a cost it measures the break-even point of a business meaning it is a situation wherein no gain or loss is incurred. It is not applicable since Service Company are into fixed costs for short term only. What are the uses of reliable cost information to management? So that you can project what will likely to happen to an area of your service business. Cost is crucial in arriving how much you will charge every client depending on the cost that you will incur in completing the service rendered. The management can have a guide on how much cost the company could afford to spend maybe in a monthly or weekly basis. Obviously, you cannot measure profit accurately if the cost wasn’t correct. If the information shows that the cost was too high in one...
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