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Cost of Service ( COS)





Cost of service can be applied to an individual customer or as an average cost of service for a group of similar customers.

Each customer has each cost of service but similar customers & services we should use average cost for each customer for management purpose.

Cost of service = material + labour + overhead

Example 

ABC Company is research company, and now company got a project for researching market demand of Product A, new brand.

Estimated cost of service for this researching project as follows.

Material ……………….$10,000

Labour…………………..$20,000

Overhead…………………$5,000

Assume fee from this project is $40,000

Required:

  1. Calculate cost of Service ( research project)
  2. Calculate gross profit (loss) from this project

Solution



1.Calculate cost of service

Cost of service = 10,000 + 20,000 + 5,000=$35,000

2.Gross Profit (Loss) from this project

Gross Profit (loss)= fee – cost of service = $40,000-$35,000=$5,000

Note: Please note that it is gross profit ( $5,000), so it is not net profit for this project because we excluded other operation costs such as admin and marketing expense.



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