Service-Based Costing

Service-Based Costing is used when a service center within an organization charges its services to other parts of the business. By using service-based costing, "client" departments can decide upon the volume and quality of services that they want to receive, based on the budgeted price. Alternatively, they can decide to look elsewhere to obtain services for a lower price. This has the effect of putting downward pricing pressure on the service department, which must now compete with the prices offered by outside service providers.