Different methods that can be used to analyze distribution costs includes cost-benefit analysis, activity based costing and resource consumption accounting method. The managerial accountants have increased responsibility to evaluate these costs and report the same to upper management (Drury, 2013). Distribution systems can get highly arduous that focuses on reviewing the costs that can be experienced throughout the year even if cost accounting attains cost data on a frequent basis.
It is vital for the controller to keep a track of distribution costs for the reason that it helps in analyzing the structure and composition of shipping expenditures, storage, finishing work along with goods sale and administrative costs. Moreover, it can also be said that if a controller ensures decreased distribution costs then it can serve as a source for increased trade profitability along with supply and marketing (Rushton, Croucher & Baker, 2014). Economic accountability development and utilization of new system of economic incentives contributes highly in decreasing distribution costs and maintaining trade profitability.
Certain steps might be taken by a controller in case distribution cost of any product exceeds actual price that was charged from the consumer. Such steps include:
- Planning and control- The controller will try to manage the actions of people those are involved in incurring costs and gathering revenues.
- Preparing control reports- The controller can prepare control reports those are quite informational that directs the accounting department in detecting actual price variations (Drury, 2013).
- Maintaining cost control standards- Maintaining standards can facilitate the controller in making sure that proper quantity and quality of products are demanded and priced effectively.
The meaning of “standards” in context of distribution costs can be understood as certain applicable rules and procedures in the preparation of cost statements. Moreover, such standards are deemed to be followed in properly defining the cost incurred for delivering the product from the manufacturing unit to the final consumers. For instance, International Financial Reporting Standards are highly followed in managing the selling and distribution expenses (Rushton, Croucher & Baker, 2014). Through use of such standards distribution costs can be easily controlled.
It is said that prices and contracts are not only the vital and strategic choice variable within the standard setting. Moreover, setting distribution standards is highly important in order to ensure standards for safety and quality. Such standards are important to be followed as this helps in ensuring that while maintaining distribution costs operational methods and personal practices are followed (Drury, 2013). Moreover, such standards are deemed to be followed in properly defining the cost incurred for delivering the product from the manufacturing unit to the final consumers.
Once a company has decides to maintain standards, they can prefer recording and maintaining several information. Information regarding variation in the actual costs of the product, operational costs and certain other information regarding organizational processes associated with after sales services are to be monitored (Rushton, Croucher & Baker, 2014). This information can be extremely helpful in decreasing the distribution costs through lowering freight costs.
Drury, C. M. (2013). Management and cost accounting. Springer.
Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.