Distribution cost analysis is a review of costs associated with moving goods from production to outlets. Methods include cost-benefit analysis, activity-based, or resource consumption style of cost accounting. Management accountants have the responsibility of reviewing these costs and finding the best method to reduce costs and become more efficient.
Distribution cost analysis is a part of cost accounting used as a review of the costs associated with moving goods from production to outlets. Most companies use a supply chain for this activity, either internal or external. Distribution cost analysis methods are cost-benefit analysis, activity-based, or resource consumption style of cost accounting. Management accountants have the greatest responsibility for reviewing these costs and submitting a report to senior management. Distribution systems can be quite arduous; Review of associated costs may occur only a few times per year, although cost accounting captures cost data frequently.
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 listed. Distribution cost analysis begins with looking at whether the benefits outweigh the costs. In some cases, this may be a primarily subjective look at costs and benefits, although more objective reviews may occur as well.
Activity-based costing is a much deeper look in terms of distribution cost analysis. Management accountants define each activity that has an impact on the distribution system. All of the costs associated with each individual activity have their own places 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 it is highly likely that this cost will be allocated to products.
The resource consumption method of cost accounting is another method available for distribution cost analysis. Its purpose is to define each resource consumed in a business process or activity and attach a cost for the use of the resource. There can be many complex pieces to a resource consumption accounting system. Cost drivers, value chain integration, and core 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 business. Management accountants have a responsibility to find the best possible method and implement it effectively. Changes may be necessary to keep up with new business activities. The ultimate goal is to reduce costs, become more efficient, and engage in competitive business behavior.
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