Question Tag: Service Characteristics

a)
i) Direct and Indirect Cost
Direct costs can be traced directly and in full to the product, service, or department, such as direct materials and direct labour. Indirect costs cannot be directly traced to a single product or service, such as factory rent or office supplies.

ii) Fixed and Variable Cost
Fixed costs remain constant in total regardless of the level of activity within a relevant range, such as rent or salaries. Variable costs vary in total directly and proportionately with changes in the level of activity, such as raw materials and direct labour.

iii) Controllable and Uncontrollable Cost
Controllable costs are those which can be influenced by the decisions or actions of a manager at a particular level of management, such as advertising expenses. Uncontrollable costs cannot be influenced by a manager, such as property taxes.

iv) Full and Marginal Cost
Full cost includes both fixed and variable costs associated with the production of goods or services. Marginal cost refers to the cost of producing one additional unit of a product or service, which usually includes only variable costs.

v) Production and Non-Production Cost
Production costs are incurred in the manufacturing process, such as raw materials and direct labour. Non-production costs include expenses that are not directly tied to the production process, such as marketing and administrative expenses.

(Each explanation well stated, 3 marks each)

b) Characteristics of Services
i) Intangibility:
Services cannot be seen, touched, or stored. They are intangible, meaning that they are experienced rather than possessed. For example, consulting or teaching services cannot be physically touched or stored for later use.

ii) Inseparability:
Services are produced and consumed simultaneously. They cannot be separated from the service provider, meaning the production and consumption of a service occur at the same time. For instance, a haircut is provided and consumed at the same time.

(5 marks)