Warehouse Cost

Question 1

Direct cost and indirect cost

Answer 1

Direct cost:
- Space cost
- Labor cost
- Equipment cost

Indirect cost:
- overhead, miscellaneous cost

Question 2

ROI and payback period

Answer 2

ROI: efficiency of the investment
= (saving-cost/ cost) x 100%

Payback period: how long will the investment take to pay for itself
= (cost/gain)x12months

Question 3

Weakness of using traditional costing method

Answer 3

Using single overhead rate is not sufficient under the proliferation of products and service complexity

Even the volume decrease, the overhead cost will not decrease

Question 4

Activity-based costing system (def. and drawbacks)

Answer 4

Definition:
charge based on respective consumption of the necessary activities

drawbacks:
- difficult to collect accurate data, need to break down into many steps or areas
- takes time to set up rules and costly even using accounting software

Question 5

Comparison of Traditional and ABC system

Answer 5

1. Who to adopt
   Traditional: small WH adopt, since they are not able to invest in large system

ABC system: big WH/Private WH/ 3rd party WH

2. Fairness:
   Traditional: unfair because overhead cost is evenly allocated to all activities and do not consider the pull-on management

ABC system: fair because overhead cost is separated and charged based on respective consumption. Create competitive advantage to attract customer

3. Unused capacity
   Traditional: unused capacity’s overhead capacity will be absorbed by used capacity, causing a higher overhead cost for each customer

ABC system: unused capacity is separated from used capacity, can reflect a more accurate cost

Question 6

Advantages of 3PL / share-user WH service

Answer 6

• share resource: save outbound transportation cost
• create competitive advantage by providing service that the company originally do not have
• Provide tailor-made price list –> Mass customization

Question 7

Charges of 3PL

Answer 7

1. Storage charges:
   - minimum charges or
   - fixed rental cost:
   not fully used –> charge at full rate
   exceed usage –> pay additional fee
2. Handling charges:
   = receipt, handling and dispatch charges
   = Amount of time to undertake this movement + cost of mechanical handling equipment used
3. Value-added service
   - hourly basis

Question 8

Logistics charging method

Answer 8

1. Open book contract
   - disclose actual costs and agreed margin
   - increased transparency: good for 3PL to create competitive price
   - includes incentives and penalties
2. Closed book contract
   - only disclose final price, based on trust
   - Charges based on marketing information and benchmarking
3. Hybrid pricing
   - fixed part = known part –> storage, leasing cost, information technology
   - variable part = real volume –> warehouse activities/ physical movement