Material Management

Activity based costing in warehouse

Presented bySharvin Thanekar -12115B0020 Amol Amrale -12115B0034 Zeniel Cohello -12115B0036

Activity based costing

"Activity-based costing is a cost accounting concept based on the premise that products (and/or services) require an organization to perform activities and that those activities require an organization to incur costs. In activity-based costing, systems are designed so that any costs that cannot be attributed directly to a product, flow into the activities that make them necessary. The cost of each activity then flows to the product(s) that make the activity necessary based on their respective consumption of that activity."

Traditional cost system vs. ABC system

The main steps to implement this costing approach are

1)Identify and define relevant activities carried out in the company; 2) identify major elements of cost, which can be viewed as the line items on a budget or As accounts included in the expense ledger; 3) determine relationships between activities and costs; 4) identify cost drivers to assign costs to activities and activities to cost objectives

(Products, services, or customers), based on the usage of the

activity;

Conti..
5) plan a cost accumulation model;

6) gather the necessary data to drive the cost

accumulation model, keeping in mind that the goal is accuracy, not precision 7) establish the cost accumulation model to simulate the organization's cost structure 8) determine crucial success factors 9) evaluate activity effectiveness and efficiency

Warehouse management
Part of firms logistics system that stores products at and between point of origin and point of consumption. Term warehousing is referred as transportation at zero miles per hour Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.

The role of the warehouse in the logistics system

The warehouse is where the supply chain holds or stores goods. Functions of warehousing include Transportation consolidation Product mixing Docking Service Protection against contingencies

RECEIVING

INPUT

Schedule Carrier Unload Vehicle Inspect for damage

WAREHOUSE PROCESS
Put-away
Identify Product Identify Product Location Move Products Update Records

Storage

Equipment Stock Location Popularity Unit Size Cube

Shipping Preparation
Packing Labeling Stacking

Order Picking
Information Walk & Pick Batch Picking

Shipping Schedule Carrier Load Vehicle Bill of Loading Record Update

OUT PUT

Costs of operating a warehouse

Capital costs

Costs of space & materials handling equipment

Operating costs

Cost of labor
Measure of labor productivity is the number of units

that an operator can move in a day

Types of costs
Space costs

Direct labour costs (fixed)

Overhead costs (management, finance, human

resources, IT and administration)

Overhead costs (sales and marketing) Miscellaneous costs

Main warehouse activities and cost drivers

Activities Order receipt Cost drivers Order volume and order source (electronic data interchange (EDI), fax, phone, or post) Quantity and packaging (pallets or cartons) Quantity of cartons

Unload incoming goods Palletize

Check incoming goods Put away incoming goods

Quantity and quality of supplier (including returns) Quantity and number of returns

Conti..
Activities Cost drivers

Picking

Number of visits to pick location and percentage of back orders

Packaging and labeling Replenishment Load outgoing goods

Number of orders picked Quantity Quantity

Conclusion
Peter Drucker for a long time has supported Activity

Based Costing because it gives superior information

about the costs of an organization thus enabling managers to make better decisions.

Webliography
http://www.valuecreationgroup.com/activity_based_co

sting_benefits.htm
http://my.safaribooksonline.com/book/operations/9780 749460747/12warehousecosts/219#X2ludGVybmFsX 0J2ZGVwRmxhc2hSZWFkZXI/eG1saWQ9OTc4MDc0 OTQ2MDc0Ny8yMjE=