The traceability of costs is as important for decision making in service businesses as in manufacturing.
For routine pricing decisions, bidding on jobs, and dropping or adding a service, knowing the costs of
different services is of paramount importance in any compet itive environment, and the traceability of
costs is as fundamental in calculating the cost of a service as it is in calculating the cost of a
manufactured good.
A simple and common example is found in the hotel business. Room service menus com monly include a
statement such as "A $2 delivery charge will be added to each order." Why not adjust the listed prices of
all items on the menu by just enough to recover delivery costs, rather than apply a separate delivery
charge? The reason is that an arbitrary allocation would be required to calculate the amount of delivery
cost that should be added to each item. Should it be the same for a $1 item as for a $30 item? Should it
be large enough to justify delivering a single-item order? The answer is that the price necessary to justify
the costs of delivering an order should be applied to each order, rather than applying some fraction of it
to each item.
Notice the explicit use of multiple cost objects in the room-service example. The room