Page 117 - MA - May 2017

ACTIVITY BASED COSTING

WITH REFERENCE TO LOGISTICS SERVICES

Activity-based-costing is a way of identifying the costs associated with operational activities so that handling and
other service contract pricing and cost reduction efforts may be improved. It allocates manufacturing overhead
by assigning indirect costs to several different cost pools, then dividing each cost pool by its associated cost driver
to obtain several different rates that can then be used to allocate overhead to different products/services. Efficient
handling of costs can provide distinct advantage over the competition.

Activity Based Costing :
 Determines the actual cost of doing business
 Identifies the areas in which costs may be reduced
 Highlights operations inefficiencies for improvement
 Draws attention to activities which are done markedly efficiently so that the principles employed may be applied
elsewhere in the operations
 Enhances price negotiation with vendors and other suppliers

Cost Management is more and more important in the case of transport & logistic companies such as the
railways, aviation, bus transit systems, ports etc. These companies need reliable information on the efficiency of
their services. The currently used cost calculation procedures however don’t meet the requirements
of up-to-date management principles and new costing methods for such industries shall be found to
overcome problems resulting in distorted information. A possible solution can be the adaptation of activity
based costing methodology to transportation specific management processes.

Examples of cost systems attributed to the various activities in Logistics Services #

Activities Costs 1.Checking lines & Infrastructure 2. Propping up the tracks 3. Removing and cutting grass 4. Transport supervision 5. Checking work done by external suppliers 6. Clearing snow and ice 7. Cleaning buildings 11. Maintenance and checking infrastructure 13. Building maintenance 17. Infrastructure electrical maintenance 18. Mechanical maintenance of tracks/ roads 19. Goods carriage

Personal costs x x x x x x x x x x x x x x x X
Maintenance x x x x x x x x
equipment
Maintenance
material x x x x x x x
Consumable work- x x x
shop material
Cleaning materials x x
Consumable elec- x x x
trical material
Miscellaneous X X X X X x
material
Miscellaneous x x x x x x x
maintenance
Other cleaning X x
service
Maintenance of x
ticket machines
Depreciation:

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