Operation Costing:
Operation costing is a method of cost accounting used to determine the cost of producing a product or
providing a service where production involves continuous or repetitive operations. It is often used in
manufacturing industries where identical or similar products are produced in bulk. Operation costing
helps in allocating costs for each operation involved in the production process.
Service Costing:
Service costing is a method of cost accounting used to calculate the cost of providing services rather
than goods. This method is applied in industries like transport, healthcare, hospitality, and education,
where services are the primary output. Service costing identifies and allocates costs such as labor,
materials, and overhead to calculate the cost per unit of service provided.
Output Costing:
Output costing, also known as unit costing, is a method of cost accounting used to determine the cost
per unit of output. It is typically applied in industries where a single product is produced on a large scale,
such as cement, sugar, or brick manufacturing. The total cost of production is divided by the number of
units produced to ascertain the cost per unit.
Service Costing:
Service costing, also known as operating costing, is a method of cost accounting used to calculate the
cost of providing a specific service. It is commonly applied in service-based industries like transport,
healthcare, hotels, and education. The focus is on identifying and allocating costs (e.g., wages, materials,
overheads) to calculate the cost per unit of service provided.
Uses of Unit Cost in the Public Sector:
1. Budgeting and Resource Allocation:
Unit cost helps in estimating the financial resources required for public services, aiding in more accurate
budgeting and efficient allocation of resources.
2. Performance Measurement:
By calculating unit costs, public sector entities can measure the efficiency and effectiveness of service
delivery.
3. Cost Control:
It provides insights into areas where costs can be minimized, promoting better use of public funds.
4. Pricing of Services:
In cases where services are partially charged (e.g., utilities or public transport), unit costs help determine
reasonable pricing structures.
5. Policy Decision Support:
Unit cost data helps in evaluating the financial implications of policies and deciding between alternative
service delivery options.
6. Transparency and Accountability:
Providing unit cost information promotes public accountability by demonstrating how funds are used
and what costs are associated with specific services.
Limitations of Unit Cost in the Public Sector:
1. Difficulty in Cost Allocation:
Public sector services often involve shared resources, making it challenging to allocate costs accurately
to a single unit of service.
2. Complexity of Public Services:
Public services are diverse and not always quantifiable, complicating the calculation of unit costs.
3. Quality Considerations:
Focusing solely on reducing unit costs may compromise service quality, which is crucial in public
services.
4. Variation in Demand:
Fluctuations in demand for public services (e.g., healthcare or disaster relief) can distort unit cost
calculations.
5. Non-Monetary Goals:
Many public sector goals are non-financial (e.g., equity, social welfare), which unit costs cannot fully
capture.
6. Data Limitations:
Inadequate or outdated data can lead to inaccurate unit cost estimations, reducing their reliability for
decision-making.
7. Political Influences:
Political priorities may overshadow the practical use of unit costs, especially in budget allocation and
policy formulation.
Performance measures in the public sector are tools used to evaluate the efficiency, effectiveness, and
quality of public services. They help assess how well public sector organizations achieve their goals and
utilize resources. These measures can be categorized as follows:
1. Input Measures
Definition: Measure the resources (e.g., money, staff, time) used to deliver a service.
Examples:Budget allocation for education or healthcare.
Number of staff employed in a department.
2. Output Measures
Definition: Measure the quantity of services delivered.
Examples:Number of students enrolled in schools.
Kilometers of roads constructed or repaired.
3. Outcome Measures
Definition: Assess the impact or results of a service on the target population or society.
Examples:Reduction in crime rates after implementing a policing program.
Improved literacy rates from education programs.
4. Efficiency Measures
Definition: Assess the relationship between inputs and outputs, focusing on how well resources are
utilized.
Examples:Cost per student educated.
Time taken to process a public service application.
5. Effectiveness Measures
Definition: Measure the extent to which objectives or desired outcomes are achieved.
Examples:Percentage of citizens satisfied with healthcare services.
Reduction in unemployment rates after a job training program.
6. Equity Measures
Definition: Assess how fairly services are delivered across different groups or regions.
Examples:Access to healthcare services in rural vs. urban areas.
Gender balance in public sector employment programs.
By combining these measures, public sector organizations can better monitor their performance,
improve accountability, and enhance service delivery.
REFERENCES
Horngren, C. T., Datar, S. M., & Rajan, M. V. (2021). Cost accounting: A managerial emphasis (17th
ed.). Pearson Education.
Bhimani, A., Datar, S. M., Horngren, C. T., & Rajan, M. V. (2019). Management and cost accounting
(7th ed.). Pearson Education.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting (3rd ed.). Pearson
Education.
Blocher, E. J., Stout, D. E., Juras, P. E., & Cokins, G. (2019). Cost management: A strategic emphasis
(8th ed.). McGraw-Hill Education.
y, C. (2 Drur018). Management and cost accounting (10th ed.). Cengage Learning.
