Target costing in service industries

In this lesson

1. 0:00 Target Costing in Service Industries
2. 0:21 Four Key Characteristics of Services
3. 1:20 Why Services Need Different Cost Management
4. 2:11 Identifying Inappropriate Cost-Closing Methods
5. 3:41 Target Costing Calculation: Full Example
6. 5:04 Calculating Target Cost from Market Data
7. 5:55 Computing Current Cost and Cost Gap

About this lesson

You'll explore the four key characteristics that make services different from goods—simultaneity, heterogeneity, intangibility, and perishability (remembered as SHIP)—and understand why closing cost gaps in services requires a different approach, focusing on labour efficiency and productivity rather than material costs. Through worked examples, you'll see how to apply the target costing methodology step by step: first calculating your target cost based on market research and desired profit margin, then determining your current cost by combining production and non-production expenses. The lesson walks you through a realistic scenario involving cost gap analysis, showing you which cost reduction strategies are appropriate for services and which would compromise quality or pricing strategy. This is essential knowledge for the Performance Management and Strategic Business Leader papers, where you'll need to evaluate costing methods and advise on pricing and cost control decisions.

Duration: 7m