Shared Service Costing

Published: 2021-07-17 10:15:07
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Category: Cost Accounting

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Helps In Identifying correct adoption of costing method which facilitates a transparent cost chargeable to Business Units (recipient of shared services) with granular Insight of the cost constituents. Introduction: In today's highly cost conscious environment, enterprise wide cost savings can be achieved by consolidating common work and infrastructure by using Shared Services units.
But Business units often complain that Shared Services end up costing more than they targeted to save and also have the below questions:- "What are my Shared services costs made up off? " "Shared services costs are too high and affecting my product profitability' Shared services are unable to answer these questions due to lack of cost transparency in their cost models.
Typical reasons for lack of cost transparency in shared services cost models are:- using complex costing methodology which makes measurement, chargeable and report to Business units difficult Lack of standardization of allocation logic Inability to completely automate the cross charging process Shared Service oodles ” Our Shared services models enable cost transparency for multi-functional and reciprocal services rendered by Shared Services units.



Cost transparency in context of Shared Services is to show the Business Services it consumes Cost of delivering these services Breaking the cost down to activities and resources involved in producing these services Allocation logic for cross charging On demand "what - with respect to demonstrate how costs change due to change In demand for services ,resource drivers and allocation logic Various automated cross charging models which reflect reciprocal services among Shared Services and eventually charge out to the Business are as follows:- Reciprocal costing model This costing model makes one time assignment of cost between Shared Services and eventually charges out Business for the Shared Services cost. This method Is easy to understand, fairly accurate and facilitates In tracing cost to the origin. It also differentiates the rate at which Shared service unit Is charged with that charged to Business. Recursive costing model Services and Business. This method is accurate and reflects simultaneous charging at the same rate to Shared service and Business.
Business benefits of the models: - (Positive Business Outcomes) Substantial reduction in lead time of calculating cross charging rates by eliminating manual and Increase in frequency of variance reporting which leads to repetitive interventions improved control of costs Detailed breakdown of cost of each service by the activities ensured and resources utilized Facilitates root cause analysis by tracing costs to origin for each service provided by Shared Services Availability of accurate and timely actionable cost data to analyze performance of Shared Services units and impact of its cost on Business Business benefits delivered.

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