UNIT 3 – Logistic Costs

Question 1

Costs notion

Answer 1

Cost incurred (value of resources consumed) and Value of resources consumed (price of the resource)

Question 2

Concepts for predicting cost behaviour:

Answer 2

• Variable cost: it varies with level of economic activity, i.e. the higher then the higher the cost too.
• Fixed cost: not depend on level of activity; they are fixed
• Step-fixed cost: it remains constant within a given capacity interval. This increase when capacity is beyond this interval and remain constant again until a new maximum capacity is reached.
• Cost driver: it is any factor causes a change in the level of a certain cost item.

Question 3

Concepts for comparing cost

Answer 3

• Unit cost: total cost / output units
• Marginal cost: the additional cost incurred when producing one additional unit of output.
• “Economies of scale” allows increasing output without further increasing costs.

Question 4

Concepts for differentiating time

Answer 4

• Actual cost: it has been actually incurred by the company.

- Future cost: expected costs (predicted costs and standard costs)

Question 5

Concepts for decision making

Answer 5

• Opportunity cost: The benefit missed by choosing one alternative over another.
• Sunk cost: It has been already incurred and cannot be recovered.
• Committed cost: investment costs made in the past that lead to resource consumption today.
• Differential cost: cost difference of two alternative decisions.

Question 6

Concept for assigning cost

Answer 6

• Direct cost: can be easily assigned/ traced to a particular product. Cost tracing to a cost object.
• Indirect cost: are not directly traceable to a particular cost object. Cost allocation to cost object.

Question 7

Concepts for analysing cash relevance

Answer 7

• Outlay cost: directly linked to cash or become cash-relevant at a later point in time. (cost incurred for a purpose eg. raw material)
• Accrual cost: Costs incurred but not cash-relevant, e.g. depreciation costs.

Question 8

What costs are considered as Logistics costs?

Answer 8

• Value of resources that have been consumed by the business entity to fulfil logistics tasks. These can be own or external resources (from third party logistics).
• Problem with logistics cost: There is no clear accepted definition for this term.

Question 9

3 Perspectives on logistics costs: How high are our logistics cost?

Answer 9

• Resource perspective: What is being used?
• Organisation perspective: Who is doing it?
• Process perspective: What is being done?

Question 10

Approaches to logistics cost allocation

Answer 10

• Allocation through dedicated logistics cost centres (e.g. operative department)
• Allocation as logistics support services
• Allocation via process-based allocation rates
• Case-specific allocation (no regular allocation rates)

Question 11

Logistics cost centres

Answer 11

• Establishing cost centers (e.g. warehousing cost center)
• Department must be big enough to justify separate treatment.
• Responsibilities are clear and easy to integrate into product costing system.
• Indirect logistic costs are ignored.

Question 12

Logistics support services

Answer 12

• Increases operating department’s awareness of logistic cost
• Suitable only for services that are not part of core value creation process.
• Logistics costs are not transparent in product costing system.

Question 13

Logistic process cost allocation

Answer 13

• Establishing a process-based cost allocation system that can identify logistical processes and determine resource consumption for them.
• Reflects true-effect relationship.
• Detailed and transparent once implemented, but very complex implementation.
• Not suitable for all types of logistical tasks and services.
• Approach 1: separate logistics cost from all other overhead cost items, determine logistics process cost rates in addition to other overhead allocation rates.
• Approach 2: Case-based determination of logistical process cost, regular product costing does not integrate logistics process rates.

Question 14

From Logistics costs to SC cost

Answer 14

• Costs that are incurred when initiating, negotiating, monitoring and adapting mutual performance relationships with SC partners.
• SC cost accounting must deliberately identify and separate cost items in order to make them manageable.