This document discusses logistics costing and various costing methods. It provides information on activity-based costing (ABC), including the basic components and stages of ABC. It also discusses mission-based costing, which identifies total costs of meeting customer service goals. The document is related to implementing an activity-based costing system for a European animal food producer to help management understand product costs and guide decision making.

2. Logistics costs are all of the expenses incurred moving
products — from sourcing raw materials to delivering
customer orders and every step in between.
1. Cost Reduction.
2. Resource allocation.
3.Manpower management.
4.Equipment management.
5. Coordination with various vendors and suppliers.
6. Negotiation.
7. Balancing cost and quality management.

3. The total cost method normally consists of subtracting the bid price from
the actual cost of performance and adding profit to the resulting amount.
Total cost includes environmental cost, maintenance cost, running cost,
disposal cost etc.

4. Traditional costing is the allocation of factory overhead to products
based on the volume of production resources consumed. Under
this method, overhead is usually applied based on either the
amount of direct labor hours consumed or machine hours used.
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Modern costing methods determine all activities associated with
production, assign a cost to those activities and then determine
the cost of the cost of the product. Modern costing method is
more accurate because it takes important factors into account
before assigning a cost to a product.

5. There are two primary stages and flow in ABC
1) tracing cost to activities
2) tracing activities to product.
And follow 4 steps of ABC cost

6. Basic 5 components of ABC

7. “Mission” is a set of customer service goals to be achieved by the system within the specific
market/product context. A successful achievement of defined mission involves a large input
from various activity centers of the firm. Hence the logistics costing should be able to identify
the total costs of meeting a desired mission. This is referred as Mission Based Costing.
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8. Define the customer service segment This is required as all
customers do not have the same service requirements
Identify factors that produce variations in the cost of service:
for example – reducing the frequency of delivery .will reduce
the costs.
Identify the specifies specific resources used to support
customer segments.
Attribute activity cost by customer type or segment.
There are four stages in implementing an effective Mission Based Costing.

9. Product Specialties: Poultry parts
Primary Customers: Retail-grocer and food service markets
Production: Processes 140,000 tons of poultry per year
This project was completed in 2016 at a European plant for one of
the largest animal food producer in the world, with a world-wide
annual production of 23.2 million tons.

10. Like many food producers, our customer has a long supply chain and uses many resources (meat,
equipment, employee labour, packing materials, etc.). Additionally, it’s common to have huge variations
on the amount of resources consumed per product and per department. Thus, it’s challenging to assign
specific costs to each product. As result of these issues, plant management could not determine which
products were making money, and which were losing money.
Management needs information available to them to help guide them in making decisions on which
products can be culled and which should be pushed during various market conditions. Our customer
could not accurately determine the value of Work-in-Progress and Cost-of-Goods-Sold, which are
required for monthly reporting in the accounting system. The system they were using could not provide
this information because most systems do not seamlessly integrate into plant floor operations systems.
Also, the auditors would not accept the spreadsheets plant employees were using because they could
not provide full traceability and validate how their numbers were calculated.

11. Implementation of an activity-based costing system that traces products
step-by-step thru the production process, enabling plant and financial
managers to understand the cost of every activity, process step and all the
components of a product’s total cost. This solution provides a financial
perspective on process yields and all production losses. The system is
auditable with full traceability of costs from product back to all inputs.

12. Follows the product step-by-step thru the production process, making
it easy to understand how costs accumulate
Converts yield losses and gains into monetary values, making it clear
what the cost of these losses may be.
Links staff and equipment resources to activities and costs, helping to
understand resource usage
Features
Makes it easy to run special alternative (what-if) scenarios if meat or
packing costs change suddenly
Identifies products and customers that add or destroy value by
incorporating cost-of-capital into costing
Simplifies critical financial decisions by providing a clear picture of all fixed
and variable costs
Benefits

13. For the first time, our customer’s management team had access to accurate, provable
data to aid in decision making. We recalibrated their scales, began validating their
information, and checked the validity of results in the costing system. There is now a
much higher level of accuracy in their data.
This empowers plant management to be responsive to market changes, Improve
production efficiencies and Control waste. Plant management could quickly identify
areas of potential savings. Our valuation reports can be used for audits as well. Our
reports provide an audit trail so auditors can confidently sign off on the reports. The
reports also show how calculations were done, how overheads are allocated, etc.