Applying managerial accounting concepts to the service industry

However, the service sector has since become a significant economic driver in the last half of the century hence the need to evaluate the relevance of managerial accounting concepts to the sector. Companies in the service sector do not deal with inventory unlike manufacturing or merchandising companies (Caplan, 2006; Walther & Skousen, 2009). Since the service sector also faces economic pressures like competition, similarly to their counterparts in other sectors, managerial accounting concepts tailored to the sector’s needs are relevant as service companies also need to plan, direct and control their business affairs to remain viable in fiercely competitive environments. One of the concerns of managerial accounting is costs. In order to understand how the costs of business behave in comparison to the business' output, it is necessary to classify them into variable costs, fixed costs, and mixed (semi-variable costs) (Caplan, 2006).

e. , whether output reduces or increases, the costs remain constant (Caplan, 2006; Walther & Skousen, 2009). Property taxes and insurance are examples of fixed costs for a hotel. It doesn’t matter how many guests the hotel receives or how much revenue is made by the establishment from its patrons – a hotel will pay a fixed amount of taxes and insurance premiums (Rushmore & O’Neill, 2014). Variable costs. Examples of fixed elements of electricity consumption include the lights in the corridors and the lobby areas which must always be on regardless of the number of guests at the hotel. Beverage and food costs are also mixed costs. No matter the occupancy levels at the hotel, a fixed level of food and beverage costs will be incurred, even if only for the staff present at the hotel (Rushmore & O’Neill, 2014).