Target Costing (3) Flashcards
What are the characteristics of target costing in service industries?
Simultaneity/inseparability
Heterogeneity/variability
Intangibility
Perishability
No transfer of ownership
What is a target cost for a services product?
The cost for an item whose design and make-up is specified in exact detail in a product specification
What is meant by intangibility in services?
Refers to lack of substance which is involved with service delviery
What happens when services are provided by humans?
Quality of personal service can be critically important for the customer, but this is difficult or impossible to specify
When services do not have any material content?
It is impossible to reduce costs to a target level bt reducing material costs. Reducing material costs however is effective for products
What is meant by inseparability?
May services are created at same time they are consumed. No service exists until it is actually being experienced or consumed by person who has bought it
What is perishability?
Services are innately perishable. Services of a beautician are purchased for a period of time
What is meant by no transfer of ownership?
The purchase of a service only confers on the custoemr access to or a right to use a facility
When a service is variable?
Possible to calculate an estimated average cost, but is not specific and not ideal for target costing
What is an issue faced by many services?
The problem of maintaining consistency in the standard of output
What is difficult to do when services are delivered by humans (variability)
It is very difficult to ensure that the same service is provided in exactly the same way every time and a standard service may not exist
A common feature in services?
Labour content may be high, but material content is quite low
A common feature in products?
Material content is always higher, but labour content may be lower
