Distribution cost analysis is a part of cost accounting that is 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 that is 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, an activity-based or resource consumption-based cost accounting style. Management accountants have primary responsibility for reviewing these costs and reporting to senior management. Distribution systems can be quite arduous; review of associated costs may occur only a few times a year, although cost accounting captures cost data frequently.
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 business. The costs associated with paying for these benefits are also listed. Distribution cost analysis begins by checking 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 deeper review in terms of distribution cost analysis. Management accountants define each activity that impacts the distribution system. All the costs associated with each individual activity have their own place in the cost review. The purpose of this process is to determine if the individual activity is too costly in terms of the overall system. In most cases, management accountants break these costs down into a figure by product because that cost is likely to be allocated to products.
The resource consumption method of cost accounting is another method available to analyze distribution costs. Its purpose is to define each resource consumed in a business process or activity and attach a cost for using the resource. There can be many complex pieces to a resource consumption accounting system. Cost drivers, value chain integration, and core operations are 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 possible method 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.