What is Cost of Service

We can easily understand the cost of goods sold. It is just excess of cost of opening stock, purchase and direct expenses over the cost of closing stock. But to understand cost of service is little difficult than cost of goods sold. There are two main reason of it.

1. In service sector, we are not producing any product. So, there is not any question of opening stock and closing stock.

2. Sometime, we hire other service for providing service to next level. At that time whether we will treat it as raw material for next service or not. If yes, then it will also be opening stock and closing stock service. We have to calculate it.

Ok, today, we are trying to explain the meaning of cost of service.

"Cost of service is the cost which we want to get for providing any service. Without this, no one can give  service to other."
I take my not-profit-organisation's example:

We are providing free educational services to the world without taking anything from public directly. But our services are not free in real sense. Because it has cost. Without getting it, we can not live.  I can include following cost of our service

Cost of Service of Our Not-for- Profit Organisation 

= Internet Cost + Computer Depreciation + Computer Repair + Building Depreciation + Building Repair + Employees' Salary + Employees' Welfare Cost + Lighting Expenses + Stationery + Printing Cost + Printer Depreciation + Vehicle Depreciation + Vehicle Repair + Volunteer' Cost ( for basic need like my  food, cloth and home expenses) +  Hosting and Domain Name Cost + Computer Software Cost + Other Welfare Activities Cost + Service Tax + VAT

Important Points 

(A) Cost of Service is just cost for providing specific service in good condition and with quality. There will not  include any profit in it.

(B) Any Not-for-Profit Organisation gets cost of service through donation, through sponsor ship advertisement, through fund from other business. These organisations do not get any profit on service. But any Profit-Making Organisation does not sell their service on cost. Services are sold profit. Following will its formula

Sale Price of Service = Cost of Service + Profit 






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Accounting Education: What is Cost of Service
What is Cost of Service
Accounting Education
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