Cost Logistics Case Study

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2.4 How can costs be allocated to processes so that better decisions can be made In this subsection, we discuss how coast can be allocated to processes in order to aid better decision making. We opine that better cost allocation can be done with the aid of activity based costing. Activity based costing provides a useful and objective way to deal with indirect cost. Arbitrary allocation of cost and the tendency to bury logistics cost in other cost present in the organization is reduced. This is because activity based costing traces costa to the activities that resulted in the cost. According to Stapleton, Pati, Beach, & Julmanichoti, (2004), ABC rectifies the weaknesses of the traditional cost accounting system by “identifying all the work activities…show more content…
In our opinion, ABC makes logistics costs more visible and cost information readily available. Management is therefore well-placed to understand the various processes and activities that affect their…show more content…
According to Stapleton, et al, (2004), the very nature of logistics sometimes makes the application of ABC difficult. They mention the nature of logistics as follows: a) output is harder to define b) activity in response to service requests may be less predictable c) joint capacity represents a high portion of total cost and is difficult to link to output related Other downside and shortcomings of ABC are presented by Ben-Arieh & Qian, (2003). According to them, ABC has done very to alter the old way of managing behaviour. It thus does not possess sufficient force to drive “companies and organizations to change their fundamental views of efficiently managing customers”. Further, Ben-Arieh & Qian, (2003) argue that ABC requires detailed information for analysis. Additional effort, time and cost is required for obtaining the information for analysis. It must also be stated that, it is sometimes difficult to obtain cost drivers for some activities. Another problem occurs when an activity has more than one cost driver. This can be a challenge in the real world. 2.5

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