Logistic costs case study – an activity based costing approach

Activity based costing (ABC) represents a radical departure from the traditional cost accounting systems. The ABC methodology, rather than allocating costs to individual units, identifies the activities that consume resources, matching costs to the level of such activities. The key aspect of this methodology is the development of the models that represent a logical and quantifiable relationship between the utilisation of resources, the performance of activities, and the products or services that they provide. With these models one can simultaneously mirror the flow of orders and products along the logistic chain, capturing the costs at a level of desegregation that enables the analysis of profit by type of client, market segment and distribution channel. This application of ABC costing to a logistic operator illustrates the main difficulties and benefits of this approach.