{"id":54,"date":"2024-09-27T17:48:04","date_gmt":"2024-09-27T17:48:04","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/chapter\/cost-accounting-systems-compared\/"},"modified":"2024-09-27T18:02:01","modified_gmt":"2024-09-27T18:02:01","slug":"cost-accounting-systems-compared","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/chapter\/cost-accounting-systems-compared\/","title":{"raw":"Cost Accounting Systems Compared","rendered":"Cost Accounting Systems Compared"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Differentiate between service, merchandising, and manufacturing cost accounting requirements<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nA business\u2019s operations are generally classified as one of three types\u2014service, merchandising, or manufacturing\u2014depending on how that business generates income.\r\n<ul>\r\n \t<li>A <strong>service business<\/strong> sells expertise, advice, assistance, professional skills, or an experience rather than a physical product.<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">A <strong>merchandising business<\/strong> purchases finished and packaged products from other companies, marks up the costs of these items and sells them to customers.<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">A <strong>manufacturing business<\/strong> assembles and packages products for sale to merchandisers or end-users.<\/li>\r\n<\/ul>\r\n<img class=\"alignleft wp-image-1558\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12224003\/andrew-coop-B4EdrpoF2Ds-unsplash-300x200.jpg\" alt=\"Three corporate buildings and a courtyard\" width=\"450\" height=\"300\" \/>\r\n\r\nAlthough managerial accounting is relevant to all three types of businesses, we are focusing on manufacturing systems since that type of business involves the most in-depth facets and examples of managerial accounting. We will also discuss managerial accounting for service businesses where appropriate.\r\n\r\nSome businesses are a mix of different types. For instance, auto manufacturers often have a subsidiary or a division that offers financing. Auto dealers may sell cars (merchandise) and also offer repairs and maintenance (service). Some companies, like a restaurant, for instance, may be classified as a service even though the employees are taking raw materials and converting those into a finished product. Other companies, like social media platforms, may not precisely fit in the service category even though that company is neither manufacturing nor merchandising. Other merchandisers, like Amazon, for instance, may provide more service (brokering) than actual retailing.\r\n\r\nHowever, for purposes of this course of study, we\u2019ll focus on clear examples of the different types.\r\n\r\nHere is a summary and a comparison of the three:\r\n\r\n<img class=\"alignnone size-full wp-image-711\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12181708\/1.3.3.png\" alt=\"Please see caption for link to alternative text\" width=\"1310\" height=\"419\" \/>\r\n\r\n[caption]See the <a href=\"https:\/\/docs.google.com\/document\/d\/1r3y5zaw8vwOjB-yhhXnSkwWR3bKPJfVYhoEMp2LfFMk\/edit?usp=sharing\" target=\"_blank\" rel=\"noopener\">alt text for this image<\/a> here. [\/caption]\r\n\r\n<center><\/center>\r\n<h3>Manufacturing companies:<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Purchase raw materials<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Raw materials transfer to work-in-process (WIP)<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Add direct labor and manufacturing overhead to convert WIP to finished goods<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sell finished goods to wholesalers and other intermediaries\u2014or sometimes to the end-user<\/li>\r\n<\/ul>\r\n<h3>Merchandising companies:<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Purchase finished goods from suppliers<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sell inventory to end-users (consumers)<\/li>\r\n<\/ul>\r\n<h3>Service companies:<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Do not carry inventory<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Sell intangibles such as consulting, tax prep, medical<\/li>\r\n<\/ul>\r\nIn addition, service companies will not show cost of goods sold on the income statement because they aren\u2019t selling goods. However, some service companies show the cost of services provided much like cost of goods sold. For instance, finance companies, or even finance divisions of a manufacturing or retail company will show revenues from financing offset by cost of financing. For the most part though, where manufacturing and retail companies show Gross Profit, which is the difference between Sales Revenue and the direct cost of the items sold, a service company will simply show gross Service Revenue.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>Manufacturing, Inc.\r\nIncome Statement\r\nFor the year ended December 31, 20XX<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 365,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight\">Cost of Goods Sold<\/td>\r\n<td><\/td>\r\n<td class=\"r highlight\">200,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross Profit<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 165,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Expenses<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative Expenses<\/td>\r\n<td class=\"r\">$ 56,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Operating Expenses<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">56,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Interest expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">12,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income before taxes<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income tax expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">32,980<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<table class=\"fin-table acctstatement fw\"><caption>Merchandising, Inc.\r\nIncome Statement\r\nFor the year ended December 31, 20XX<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 365,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight\">Cost of Goods Sold<\/td>\r\n<td><\/td>\r\n<td class=\"r highlight\">200,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross Profit<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 165,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Expenses<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative Expenses<\/td>\r\n<td class=\"r\">$ 56,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Operating Expenses<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">56,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Interest expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">12,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income before taxes<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income tax expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">32,980<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<table class=\"fin-table acctstatement fw\"><caption>Service, Inc.\r\nIncome Statement\r\nFor the year ended December 31, 20XX<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Service Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 165,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Expenses<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative Expenses<\/td>\r\n<td class=\"r\">$ 56,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Operating Expenses<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">56,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Interest expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">12,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income before taxes<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income tax expense<\/td>\r\n<td><\/td>\r\n<td class=\"r\">32,980<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nEven so, service companies still use aspects of managerial accounting, such as budgeting, cash forecasting, and capital acquisition analysis. In fact, many service companies use metrics like unit cost for planning, directing, and controlling operations. For instance, a tax firm might want to know how much to charge for each return processed in order to cover expenses and make a profit.\r\n\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\">Here is a short video demonstrating how a service company could calculate the cost of a job:\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352519&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=bwWKXibDy4U&amp;video_target=tpm-plugin-burgdog7-bwWKXibDy4U\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/ServiceCompanyCalculatingUnitCosts_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Service Company calculating unit costs\" here (opens in new window)<\/a>.\r\n\r\n<\/section>&nbsp;\r\n\r\nNow it\u2019s time to check your understanding of the differences between service, manufacturing, and merchandising cost flows.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm_question hide_question_numbers=1]217915[\/ohm_question]\r\n\r\n<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Differentiate between service, merchandising, and manufacturing cost accounting requirements<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>A business\u2019s operations are generally classified as one of three types\u2014service, merchandising, or manufacturing\u2014depending on how that business generates income.<\/p>\n<ul>\n<li>A <strong>service business<\/strong> sells expertise, advice, assistance, professional skills, or an experience rather than a physical product.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">A <strong>merchandising business<\/strong> purchases finished and packaged products from other companies, marks up the costs of these items and sells them to customers.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">A <strong>manufacturing business<\/strong> assembles and packages products for sale to merchandisers or end-users.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignleft wp-image-1558\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12224003\/andrew-coop-B4EdrpoF2Ds-unsplash-300x200.jpg\" alt=\"Three corporate buildings and a courtyard\" width=\"450\" height=\"300\" \/><\/p>\n<p>Although managerial accounting is relevant to all three types of businesses, we are focusing on manufacturing systems since that type of business involves the most in-depth facets and examples of managerial accounting. We will also discuss managerial accounting for service businesses where appropriate.<\/p>\n<p>Some businesses are a mix of different types. For instance, auto manufacturers often have a subsidiary or a division that offers financing. Auto dealers may sell cars (merchandise) and also offer repairs and maintenance (service). Some companies, like a restaurant, for instance, may be classified as a service even though the employees are taking raw materials and converting those into a finished product. Other companies, like social media platforms, may not precisely fit in the service category even though that company is neither manufacturing nor merchandising. Other merchandisers, like Amazon, for instance, may provide more service (brokering) than actual retailing.<\/p>\n<p>However, for purposes of this course of study, we\u2019ll focus on clear examples of the different types.<\/p>\n<p>Here is a summary and a comparison of the three:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-711\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12181708\/1.3.3.png\" alt=\"Please see caption for link to alternative text\" width=\"1310\" height=\"419\" \/><\/p>\n<p>See the <a href=\"https:\/\/docs.google.com\/document\/d\/1r3y5zaw8vwOjB-yhhXnSkwWR3bKPJfVYhoEMp2LfFMk\/edit?usp=sharing\" target=\"_blank\" rel=\"noopener\">alt text for this image<\/a> here. <\/p>\n<div style=\"text-align: center;\"><\/div>\n<h3>Manufacturing companies:<\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Purchase raw materials<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Raw materials transfer to work-in-process (WIP)<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Add direct labor and manufacturing overhead to convert WIP to finished goods<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sell finished goods to wholesalers and other intermediaries\u2014or sometimes to the end-user<\/li>\n<\/ul>\n<h3>Merchandising companies:<\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Purchase finished goods from suppliers<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sell inventory to end-users (consumers)<\/li>\n<\/ul>\n<h3>Service companies:<\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Do not carry inventory<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Sell intangibles such as consulting, tax prep, medical<\/li>\n<\/ul>\n<p>In addition, service companies will not show cost of goods sold on the income statement because they aren\u2019t selling goods. However, some service companies show the cost of services provided much like cost of goods sold. For instance, finance companies, or even finance divisions of a manufacturing or retail company will show revenues from financing offset by cost of financing. For the most part though, where manufacturing and retail companies show Gross Profit, which is the difference between Sales Revenue and the direct cost of the items sold, a service company will simply show gross Service Revenue.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>Manufacturing, Inc.<br \/>\nIncome Statement<br \/>\nFor the year ended December 31, 20XX<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Revenue<\/td>\n<td><\/td>\n<td class=\"r\">$ 365,000<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight\">Cost of Goods Sold<\/td>\n<td><\/td>\n<td class=\"r highlight\">200,000<\/td>\n<\/tr>\n<tr>\n<td>Gross Profit<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 165,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Expenses<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative Expenses<\/td>\n<td class=\"r\">$ 56,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total Operating Expenses<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">56,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\n<\/tr>\n<tr>\n<td>Interest expense<\/td>\n<td><\/td>\n<td class=\"r\">12,000<\/td>\n<\/tr>\n<tr>\n<td>Net income before taxes<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\n<\/tr>\n<tr>\n<td>Income tax expense<\/td>\n<td><\/td>\n<td class=\"r\">32,980<\/td>\n<\/tr>\n<tr>\n<td>Net income<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table class=\"fin-table acctstatement fw\">\n<caption>Merchandising, Inc.<br \/>\nIncome Statement<br \/>\nFor the year ended December 31, 20XX<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Revenue<\/td>\n<td><\/td>\n<td class=\"r\">$ 365,000<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight\">Cost of Goods Sold<\/td>\n<td><\/td>\n<td class=\"r highlight\">200,000<\/td>\n<\/tr>\n<tr>\n<td>Gross Profit<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 165,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Expenses<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative Expenses<\/td>\n<td class=\"r\">$ 56,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total Operating Expenses<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">56,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\n<\/tr>\n<tr>\n<td>Interest expense<\/td>\n<td><\/td>\n<td class=\"r\">12,000<\/td>\n<\/tr>\n<tr>\n<td>Net income before taxes<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\n<\/tr>\n<tr>\n<td>Income tax expense<\/td>\n<td><\/td>\n<td class=\"r\">32,980<\/td>\n<\/tr>\n<tr>\n<td>Net income<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table class=\"fin-table acctstatement fw\">\n<caption>Service, Inc.<br \/>\nIncome Statement<br \/>\nFor the year ended December 31, 20XX<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Service Revenue<\/td>\n<td><\/td>\n<td class=\"r\">$ 165,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Expenses<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative Expenses<\/td>\n<td class=\"r\">$ 56,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total Operating Expenses<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">56,000<\/td>\n<\/tr>\n<tr>\n<td>Operating Income<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 109,000<\/td>\n<\/tr>\n<tr>\n<td>Interest expense<\/td>\n<td><\/td>\n<td class=\"r\">12,000<\/td>\n<\/tr>\n<tr>\n<td>Net income before taxes<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 97,000<\/td>\n<\/tr>\n<tr>\n<td>Income tax expense<\/td>\n<td><\/td>\n<td class=\"r\">32,980<\/td>\n<\/tr>\n<tr>\n<td>Net income<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 64,020<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Even so, service companies still use aspects of managerial accounting, such as budgeting, cash forecasting, and capital acquisition analysis. In fact, many service companies use metrics like unit cost for planning, directing, and controlling operations. For instance, a tax firm might want to know how much to charge for each return processed in order to cover expenses and make a profit.<\/p>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\">Here is a short video demonstrating how a service company could calculate the cost of a job:<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352519&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=bwWKXibDy4U&amp;video_target=tpm-plugin-burgdog7-bwWKXibDy4U\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/ServiceCompanyCalculatingUnitCosts_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Service Company calculating unit costs&#8221; here (opens in new window)<\/a>.<\/p>\n<\/section>\n<p>&nbsp;<\/p>\n<p>Now it\u2019s time to check your understanding of the differences between service, manufacturing, and merchandising cost flows.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm217915\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=217915&theme=lumen&iframe_resize_id=ohm217915&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/section>\n","protected":false},"author":6,"menu_order":14,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Cost Accounting Systems Compared\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Principles of Managerial Accounting\",\"author\":\"Christine Jonick\",\"organization\":\"\",\"url\":\"https:\/\/ung.edu\/university-press\/books\/managerial-accounting.php\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Three corporate buildings and a courtyard\",\"author\":\"\",\"organization\":\"Unsplash\",\"url\":\"https:\/\/unsplash.com\/photos\/B4EdrpoF2Ds\",\"project\":\"\",\"license\":\"cc0\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":40,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Cost Accounting Systems Compared","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""},{"type":"cc","description":"Principles of Managerial Accounting","author":"Christine Jonick","organization":"","url":"https:\/\/ung.edu\/university-press\/books\/managerial-accounting.php","project":"","license":"cc-by-sa","license_terms":""},{"type":"cc","description":"Three corporate buildings and a courtyard","author":"","organization":"Unsplash","url":"https:\/\/unsplash.com\/photos\/B4EdrpoF2Ds","project":"","license":"cc0","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/54"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":1,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/54\/revisions"}],"predecessor-version":[{"id":247,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/54\/revisions\/247"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/40"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/54\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/wp\/v2\/media?parent=54"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=54"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/wp\/v2\/contributor?post=54"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/managerialaccounting\/wp-json\/wp\/v2\/license?post=54"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}