Explain the uses of activity-based costing in the service industries.

Management Accounting – Activity based Costing

Question
XYZ Ltd. currently make and sells four products. They provide you with their details and relevant information for one period in the following table.

You have ascertained that the ‘cost drivers’ to be used are as listed below for the overhead costs shown:
Cost Cost Driver
Set-up costs Number of production runs
Stores receiving Requisition raised
Inspection/Quality control Number of production runs
Material handling and dispatch Orders executed

Large service organisations, such as banks and hospitals, used to be noted for their lack of standard costing systems, and their relatively unsophisticated budgeting and control systems compared with large manufacturing organisations. But this is changing and many large service organisations are now revising their use of management accounting techniques.
Requirement:
Explain the uses of activity-based costing in the service industries.