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What Are the Different Methods of Distribution Cost Analysis?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 29 August 2016
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Distribution cost analysis is a part of cost accounting used as a review of costs associated with moving goods from production to retail outlets. Most companies use a supply chain for this activity, whether internal or external. Methods of distribution cost analysis are a cost-benefit analysis, activity based, or resource consumption style of cost accounting. Managerial accountants have the most responsibility to review these costs and send a report to upper management. Distribution systems can be quite arduous; reviewing the associated costs may only occur a few times a year, though cost accounting captures cost data frequently.

Cost-benefit analysis is a classic form of review method in cost accounting. Managerial accountants list all the benefits — monetary and otherwise — the distribution system brings to the company. Costs associated with paying for these benefits are also on the list. Distribution cost analysis starts with looking at whether the benefits outweigh the costs. In some cases, this may be a mostly subjective look at costs and benefits, though more objective reviews can also occur.

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Activity based costing is a much more in-depth review in terms of distribution cost analysis. Managerial accountants define each activity that makes an impact in the distribution system. All costs associated with each individual activity have their own places in the cost review. The purpose of this process is to determine if the individual activity is too costly in terms of the overall system. In most cases, managerial accountants break down these costs in a per-product figure because this cost will most likely be allocated to the products.

The resource consumption method of cost accounting is yet another available method for distribution cost analysis. Its purpose is to define each resource consumed in a business process or activity and attach a cost for the use of the resource. Many complex pieces may exist in a resource consumption accounting system. Cost drivers, value chain integration, and fundamental operations are all parts of the process that affect the cost analysis phase. Finding ways to improve the overall distribution system financially and operationally can be the result of resource consumption accounting.

Not all methods of distribution cost analysis will work for a company. Managerial accountants have a responsibility to find the best method possible and implement it effectively. Changes may be necessary to stay current on new business activities. The ultimate goal is to lower costs, become more efficient, and engage in competitive business behavior.

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