What are the different distribution cost analysis methods?

Distribution cost analysis is a part of cost accounting used as a review of the costs associated with moving goods from production to points of sale.

Distribution cost analysis is a part of cost accounting used as a review of the costs associated with moving goods from production to points of sale. Most companies use a supply chain for this activity, whether internal or external. Distribution cost analysis methods are a cost-benefit analysis, a cost accounting style based on activities or resource consumption. Management accountants have the primary responsibility for reviewing these costs and submitting a report to senior management. Distribution systems can be quite arduous; the review of associated costs may only occur a few times a year, although cost accounting frequently captures cost data.

Shipping is included in the distribution cost.

Cost-benefit analysis is a classic form of review method in cost accounting. Management accountants list all the benefits – monetary and otherwise – that the distribution system brings to the company. The costs associated with paying these benefits are also on the list. The analysis of distribution costs starts by verifying whether the benefits outweigh the costs. In some cases, this may be a more subjective view of costs and benefits, although more objective analyzes may also occur.

Activity-based costing is a much more in-depth review in terms of analyzing distribution costs. Management accountants define each activity that impacts the distribution system. All costs associated with each individual activity have their own place in the cost review. The purpose of this process is to determine whether the individual activity is too expensive in terms of the overall system. In most cases, management accountants break these costs down into one figure per product because that cost is likely to be allocated to products.

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The resource consumption method of cost accounting is another method available for analyzing distribution costs. Its purpose is to define each resource consumed in a business process or activity and attach a cost for using the resource. Many complex pieces can exist in a resource consumption accounting system. Cost drivers, value chain integration and fundamental operations are all parts of the process that affect the cost analysis phase. Finding ways to improve the overall distribution system, financially and operationally, can be the result of resource consumption accounting.

Not all distribution cost analysis methods will work for a company. Management accountants have a responsibility to find the best method possible and implement it effectively. Changes may be necessary to keep up to date on new business activities. The ultimate goal is to reduce costs, become more efficient and engage in competitive business behavior.

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