Service organization

Definition

Service organizations provide intangible products or services to customers rather than physical goods. Examples include consulting firms, hotels, and healthcare providers.

5 Must Know Facts For Your Next Test

1. Service organizations do not hold inventory like manufacturing and merchandising companies.
2. Revenue in service organizations is generated through the provision of services rather than the sale of goods.
3. Cost accounting in service organizations often focuses on labor costs as a primary expense.
4. Quality control and customer satisfaction are critical performance metrics for service organizations.
5. Service organizations typically have a higher degree of direct interaction with customers compared to manufacturing or merchandising businesses.

Review Questions

• What differentiates a service organization from a manufacturing or merchandising company?
• Why is labor cost typically a significant expense in service organizations?
• How does quality control impact the performance metrics in service organizations?

Related terms

Merchandising Organization: A business that purchases finished products for resale to customers.

Manufacturing Organization: A company that produces goods from raw materials through various processes before selling them.

Cost Accounting:

The process of tracking, recording, and analyzing costs associated with the activities of an organization.