Record to report / R2R – General Accounting – Cost Accounting
In the last post, I had left you with a thought – can the process of costing apply to service industry as well?
The short and simple answer is – absolutely yes.
In my previous job, I was working for a finance BPO. There used to a detailed exercise each year, ah yes, budgeting. This exercise used to account for all financials in the previous year, and create the next financial period projection. The data which was collected was used to ascertain the fully loaded cost of each seat offered from the back-office to a client.
Whenever a deal was to be negotiated, the central FP&A team had to give clearances, for the offered price, based on various direct and indirect costs of each delivery location, covering manpower costs, both for direct operation and an allocated portion of the support function cost, the rentals, electricity, cafeteria, and all other non-direct costs, the communication bandwidth, the setup costs for the prospective process, split between one time and ongoing.
Thus the accounting or the cost-accounting team played a major role in determining the basic cost and advising the management on the pricing expected, to meet the profitability goals of the organization.
This process applies to all organizations, big or small, whether they realize this activity to be a formal or an informal process.
So, any large organization will always have to deploy this process, and as a back office unit, you can really add immense value by building a center of excellence and best practice sharing.
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I am not an account person, but it is known that the cost accounting process in service industry is slightly different from other industries. Here the cost varies from job to job and each head is having difference.
Vice President at JWCGU
Gurudeo, you are correct. The costing process will not only change for the service industry, but even in manufacturing and trading scenarios, there will be sufficient adaptations for business types, the modes of costing adopted and the nature of cost inputs. For a back office it is important to understand the business and business processes.