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Measuring logistics costs and performanc... > Cost drivers and activity-based cost... - Pg. 80

Cost drivers and activity-based costing As we indicated earlier in this chapter there is a growing dissatisfaction with conventional cost accounting, particularly as it relates to logistics management. Essentially these problems can be summarised as follows: M M There is a general ignorance of the true costs of servicing different customer types/channels/market segments. Costs are captured at too high a level of aggregation. Full cost allocation still reigns supreme. Conventional accounting systems are functional in their orientation rather than output oriented. Companies understand product costs but not customer costs. M M M M M M M M The common theme that links these points is that we seem to suffer in business from a lack of visibility of costs as they are incurred through the logistics pipeline. Ideally what logistics management requires is a means of capturing costs as prod- ucts and orders flow towards the customer. To overcome this problem it is necessary to change radically the basis of cost accounting away from the notion that all expenses must be allocated (often on an arbitrary basis) to individual units (such as products) and, instead, to separate the expenses and match them to the activities that consume the resources. One approach that can help overcome this problem is `activity-based costing'. 9 The key