Target Costing for services

Target Costing for Services - HandbookCategorization of processesThe total target costs for rendering the service are calculated foreach successfully created part of the process. For this purpose, theparts of the process are categorized according to their closeness tothe set of assigned activities, forming the following system:First grade processes have a direct relationship with therendering of the service, i.e. with the clients. Forexample, the assembling of a machine by clientsthrough service personal of the provider.Second grade processes have an indirect relationshipwith the rendering of the service, and often serve assupport of first grade processes, e.g. the preparation ofthe assembly, rout planning and staff assignment.Process cost calculationAs a result, the service is fragmented into the elements that causecosts with the help of the process cost calculation, assigning thehighest acceptable costs in each part of the process. The value of thefixed costs depends on the relevance of each part of the processaccording to the uses (able to be quantifiable) on the part of clients.In order to calculate these variables, the first step consists of definingthe activities that must shape the service, through market and clientanalysis, for example. Finally, the respective client uses areestablished and evaluated, for example through surveys toclients.The higher the provision of benefits on the part of a process,the higher the estimation of maximum costs for that part of theprocess. The ceiling costs of a part of the process, with respect to thetotal costs, results from the corresponding participation fraction ofthe element respective to the total uses of the service. Thus, as aresult of the use of the basic principles of target costing (related tohigh costs) in each part of the process, their contribution to thebenefit of the client is obtained.9