The managing director of Allens Home Interiors, an interior design firm, asked the accountant to consider
developing a service costing system. The accountant responded:
‘We’re a service business. All our costs are period costs that have to beexpensed in the period in which they have been incurred. We don’t needproduct costing.’
The managing director is furious. (He’s never heard of period costs!) He asks you to evaluate the accountant’s response and to prepare a clear explanation of how service costing could help him manage the business.