Logistics Costing Techniques and their Application to a Singaporean Wholesaler

Abstract

The basic principle of logistics costing is to identify the different costs that result from servicing customers with particular product mixes. Conventional accounting methods, which were strongly based on a few volume-based cost drivers for the allocation of shared and indirect costs, are being superceded by other costing methods such as direct product profitability (DPP) and activity-based costing (ABC) where overhead costs are allocated in relation to a firm's activities and their consumption of resources. This paper examines how a small Singaporean wholesale company reviewed its product and channel strategy by using ABC and DPP techniques. The research showed that direct operating costs could turn healthy gross profit figures into marginal overall contributions to profit. It also highlighted where further cost savings could be made by utilising sales promoters more effectively and reviewing minimum order sizes and delivery orders.