Activity Based Costing in

Logistics
SUBMIT TED BY: GROUP 8
RAJAT MAHESHWARI, RITURAJ, ROCHISMAN DUT TA, RUTHWIK UPPALA,
SANAT MOHANTY
 Activity Based Costing
Activity-based costing (abc) is an accounting method that identifies the activities that a firm performs and
then assigns indirect costs to products
Indirect costs, such as management and office staff salaries are sometimes difficult to assign to a
particular product produced
There are two categories of activity measures:
1. transaction drivers which involves counting how many times an activity occurs
2. duration drivers which measure how long an activity takes to complete
This costing system is used in target costing, product costing, product line profitability analysis, customer
profitability analysis and service pricing
It is mostly used in manufacturing industry since it enhances the reliability of cost data and results in
better classification of costs incurred by the company
 Traditional Costing vs Activity Based
costing
Traditional Costing - assigns costs to product and or service, average overhead rate. This method adds all
indirect costs of Product/ Service and applies those cost equally across the board using one appropriate cost
driver such as machine hours.

ABC - determines all activities associated with product/ service, assigns a cost to those activities and then
determines cost of the product. This means equal division of cost is not done leading to better insights as to
the real cost drivers in a particular process
ABC principles applied to logistics
1. Identifying and classifying main logistics processes
2. Breaking the processes down into activities
3. Identifying the resources consumed in performing each of the activities
4. Determining the costs of the activities through resource driver
5. Assigning the costs to the cost objects through activity driver & assigning the total cost
 APPLICATION OF ABC IN AGRO-LOGISTICS

Identifying Processes & breaking down processes into activities Determining costs for these activities & optimizing the total cost
 Steps in the logistics process

Demand
Material Inventory
forecasting and Procurement
Handling management
planning

Transportation/
Order
Freight Warehousing
Processing
Management
 Advantages of Activity Based Costing
There is no way of finding whether a client is profitable or not. As a result, clients who contribute much to the
profit may be handled with insufficient care. Many enterprises suffered through this before they
implemented Activity Based Costing
The final shape of the model is for small and medium sized enterprise is relatively simple and thus doable in
principle
An IT system that supports ABC is of less compounded architecture and needs less input data than it is in the
case of a producer
The easy approach is to use ABC software in conjunction with a company's existing accounting system. The
traditional system continues to be used as before, with the ABC structure an extra to be called upon when
specific cost information is required to help make a particular decision.
 Disadvantages of Activity Based Costing
1. High Implementation Costs: Experts must be brought in for an extended period of time, and other measures
may be necessary for the ABC to be effective.
2. Time involved: All of the processes, employee actions, and aspects of the business have to be examined for an
extended period of time in order to gain a big view on what truly are the issues
3. Data Flaws: ABC requires many different departments and individuals to collect and input data. Even the
smallest flaw in this information can damage the entire process and the outcome would be tainted. This is one
of the biggest risks that are taken on when using this method
THANK YOU