Costing and Profitability Analysis in Logistics Quiz

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Questions and Answers

What proportion of gross domestic product is the total cost of logistics estimated to be close to in the USA?

10% (correct)
5%
15%
20%

Why are traditional accounting systems not always fully understood by organizations in terms of logistics costs?

They ignore both customer and product costs
They focus on understanding customer costs rather than product costs
They tend to be focused around understanding product costs rather than customer costs (correct)
They tend to be focused around understanding customer costs rather than product costs

What does logistics activity not just generate, but also revenue through?

The provision of availability (correct)
Cost
Supply chain decisions
Financial issues

What form of resources does logistics activity require?

Fixed capital and working capital (B) Signup and view all the answers

How can logistics management impact Return on Investment (ROI)?

By influencing the ratios of profit/sales and sales/capital employed. (A) Signup and view all the answers

What is the significance of cash and receivables in business liquidity?

They are crucial to business liquidity, and logistics variables directly impact this part of the balance sheet. (B) Signup and view all the answers

How does logistics influence the balance between debt and equity in financial management?

It is impacted by alternative logistics strategies such as leasing and third-party suppliers. (D) Signup and view all the answers

How does logistics management impact the shape of the balance sheet?

By influencing operating income and the level of current assets tied up in inventory. (D) Signup and view all the answers

What is the main factor that determines the value of a business?

Net present value of free cash flow (C) Signup and view all the answers

What is crucial for effective logistics and supply chain management?

Defining the desired outputs of the logistics system and identifying the costs associated with providing those outputs (B) Signup and view all the answers

What does the concept of 'mission' in logistics and supply chain management refer to?

A set of customer service goals achieved within a specific product/market context (A) Signup and view all the answers

What does logistics management aim to integrate across the pipeline from suppliers to final customers?

Resources (D) Signup and view all the answers

What is economic value added (EVA)?

The difference between operating income after taxes and the true cost of capital employed to generate those profits (B) Signup and view all the answers

How can logistics impact shareholder value?

By impacting net operating income and capital efficiency (A) Signup and view all the answers

What are the basic drivers of enhanced shareholder value?

Revenue growth, operating cost reduction, fixed capital efficiency, working capital efficiency, and tax minimization (B) Signup and view all the answers

How can time compression in the pipeline impact working capital requirements?

It can reduce working capital requirements by decreasing inventory (B) Signup and view all the answers

What is the purpose of direct product profitability (DPP) in logistics and supply chain management?

Identifying all costs attached to a product or order as it moves through the distribution channel (D) Signup and view all the answers

What does customer profitability analysis involve in logistics and supply chain management?

Identifying avoidable costs and incremental revenue to accurately measure customer profitability (C) Signup and view all the answers

What is the purpose of logistics cost analysis in logistics and supply chain management?

Provide managers with reliable information for better resource allocation (B) Signup and view all the answers

What is the reverse of traditional techniques in mission costing in logistics and supply chain management?

Mission costing, where functional budget is determined by the demands of the missions it serves (B) Signup and view all the answers

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Study Notes

Costing and Profitability Analysis in Logistics and Supply Chain Management

Effective costing system aims to determine total systems cost of meeting mission objectives and the costs of various inputs involved
Mission costing is the reverse of traditional techniques, where functional budget is determined by the demands of the missions it serves
Customer profitability analysis involves identifying avoidable costs and incremental revenue to accurately measure customer profitability
Customer profitability matrix categorizes customers based on their net sales value and cost-to-serve
Different strategies are proposed for customer categories including Build, Danger zone, Cost engineer, and Protect
Direct product profitability (DPP) attempts to identify all costs attached to a product or order as it moves through the distribution channel
Understanding DPP is important for suppliers as their ability to be a low-cost supplier is influenced by the costs incurred in the logistics system
Table 3.3 describes the steps to be followed in moving from a crude gross margin measure to a more precise DPP
Four stages in the implementation of an effective mission costing process are defined: defining customer service elements, identifying factors leading to variations in service, identifying specific resources used to support customer segments, and attributing activity costs by customer type or segment
The basic purpose of logistics cost analysis is to provide managers with reliable information for better resource allocation to meet customer service requirements in the most cost-effective manner

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