Question:
Large service organisations, such as banks and hospitals, used to be noted for their lack of standard costing systems, and their relatively unsophisticated budgeting and control systems compared with large manufacturing organisations. But this is changing and many large service organisations are now revising their use of management accounting techniques.
Requirements:
(a) Explain which features of large-scale service organisations encourage the application of activity-based approaches to the analysis of cost information.
(b) Explain which features of service organisations may create problems for the application of activity-based costing.
(c) Explain the uses for activity-based cost information in service industries.
(d) Many large service organisations were at one time state-owned, but have been privatised. Examples in some countries include electricity supply and telecommunications. They are often regulated. Similar systems of regulation of prices by an independent authority exist in many countries, and are designed to act as a surrogate for market competition in industries where it is difficult to ensure a genuinely competitive market.
Explain which aspects of cost information and systems in service organisations would particularly interest a regulator, and why these features would be of interest.