Cost accounting principles and applications

¶ … Themido, I., A. Arantes, C. Fernandes & A.P. Guedes. (2000). Logistic costs case study: An

ABC approach. The Journal of the Operational Research Society, 51 (10): 1148-1157

Stable URL: http://www.jstor.org/stable/253927

The use of Activity-Based Costing (ABC) reflects the fact that indirect costs and overhead costs are often more draining to modern organizations than direct costs.

The article specifically discusses the use of ABC in terms of its use in costing logistics services.

Traditional costing in logistics uses the direct product profit-ability (DPP) methodology which is "to identify all the costs associated with a product or an order as it moves through the distribution channel" (Themido et al. 2000: 1149).

ABC identifies activities "that are responsible for costs and therefore consume resources, provides a cost flow assignment chain which enables the activity costs to be continuously re-assigned or imputed to the products, customers, or services that use the activity" (Themido et al. 2000: 1149).

The article concludes with a case study of ABC for a third party logistics operator in Portugal.

Analysis

The article compares and contrasts the use of ABC with traditional methods in logistics in a manner that is designed to be both persuasive and informative for individuals working in the logistics field.

The article defines key terms in ABC such as "activities" which "are tasks or sets of tasks" that consume resources to create a "cost object" or product or service; a cost driver "a variable that demonstrates a logical and quantifiable cause and effect relationship between the utilization of resources" and the cost object; and "operational costs" which are the causes of the cost objects' final costs (Themido et al. 2000: 1149). This enables even a relatively unfamiliar reader in the logistics industry to not only understand the article, but also to gain a grounding in ABC literature that can enable him or her potentially change the methodology of cost accounting within his or her organization.

It explains the terms of ABC and shows how to create an ABC logistics cross for an organization.