Cost planning and control are vital links in any organization. Activities, Cost Planning and Control presentation covers topics like intermediate ratio in transportation, warehouse facility, inventory and external and internal environment factors. Other topics related to Cost Planning and Control are also discussed in this presentation by Welingkar’s Distance Learning Division. For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/DistMang Join us on Facebook: http://www.facebook.com/welearnindia Follow us on Twitter: https://twitter.com/WeLearnIndia Read our latest blog at: http://welearnindia.wordpress.com Subscribe to our Slideshare Channel: http://www.slideshare.net/welingkarDLP

1. Welingkar’s Distance Learning Division
CHAPTER-3
Activities Cost Planning &
Control
We Learn – A Continuous Learning Forum

2. Activities costs planning & control
• The budget having set the tasks and the
expenses norms, the distribution department
can now use the same to periodically review
and control the expenses, as well as monitor
the efficiency and effectiveness of the
operation
Activities Costs Planning and Control

3. Ratios
Key Ratios
Intermediate Ratios
Grass
Roots
Ratios
Intermediate Ratios
Grass
Roots
Ratios
Grass
Roots
Ratios
Activities Costs Planning and Control

4. Transportation Intermediate Ratio
• This primarily will be transportation cost as a
percentage of sales/gross margin/cost of
production the grass roots ratios can be
– Transportation cost per unit of movement at
different stages of the chain
– Transportation task performance, which can be
ratios to determine tonnage/km movement in
days.
Activities Costs Planning and Control

5. Warehouse Facility intermediate ratio
• Main ratio will be warehousing cost as a percentage
of sales/gross margin/cost of production
• Grass root ratio can be
–
–
–
–
–
Warehousing rental rate per cu. ft.
Warehouse cu. Ft. utilization against available space
Percentage of orders served within 24 hrs
Documentation costs such as invoicing
Mechanized facilities cost
Activities Costs Planning and Control

6. Inventory intermediate ratio
• Prime point of focus would be the amount of
inventory held in number of days of sales,
since holding inventory means blocking that
much amount of capital, improper inventory
management can also mean stock outs, which
can mean loss of profits
Activities Costs Planning and Control

7. Inventory intermediate ratio
• Typical grass roots ratio
– Inventory carrying costs
– The stock turnover velocity
– Rate of stock shrinkage
– Average no. of days of stock out
– Value of dames as a percentage of sales
Activities Costs Planning and Control

8. Distribution Function Audit
• Standards
– Reviewing existing performances and procedures
and cost accounting techniques, which is zero
based
– Attempting to gain some competitor's
standards/industry benchmarks
– Use internal data over a period of time and select
own best average performance figures as
benchmark
Activities Costs Planning and Control

9. Return or Assets -ROA
• The logistics function should use return on
assets or return on investments as measure of
financial performance
• It is important that return is calculated on
logistical assts
• Should not have over emphasis on reduced
cost
Activities Costs Planning and Control

10. The audit process should address
• Where the organization stands at that point of
time in terms of physical material flow
• How the same matches with information flow
• How cost effective the existing logistics system
is
Activities Costs Planning and Control

11. The external environment factors would be
• Source market
– The sources from which inputs to the
manufacturing process are procured
• User market
– Where the products are going to be sold,
consumed
• Competition
• Channel
– Channel of distribution impacts strategy, costs and
efficiency
Activities Costs Planning and Control

12. The internal environment factors would be
• Product Related
– Seasonality
– New products , modifications
– Special handlings
– Special requirements
Activities Costs Planning and Control

13. The internal environment factors would be
• Distribution Pattern
– Organization structure
– Product characteristics
– Shipment characteristics
– Purchasing characteristics
– Warehouse utilization
– Transport utilization
– Stocking requirements
Activities Costs Planning and Control

14. The internal environment factors would be
• Systems
– Purchasing system
– Production scheduling
– Data warehousing facility
– Warehouse facility
– Transport facility
– Material handling facility
Activities Costs Planning and Control

15. Materials and Communication Flow
Central
Warehouse
Factory
Information Flow
Order Flow
Customer
C & FA
Materials Flow
Activities Costs Planning and Control

16. The Audit should now cover
1.
2.
3.
4.
5.
Customer service perception audit
Competitor audit
Channels audit
Materials supply audit
Finished goods distribution audit
Activities Costs Planning and Control

17. When Evaluation is needed
• Organization makes significant change in its
marketing strategy
• Size of the organization changes significantly
• Inventory turns very slow
• Poor customer service
• Inter warehouse shipments stock transfers
between various locations
Activities Costs Planning and Control

18. When Evaluation is needed
• Premium freight charges i.e. extra charges
paid to a transporter to ferry cargo fast
• Signs of mal-distribution which would be
most critical ,can be suspected if
Activities Costs Planning and Control

19. Typical audit findings
a. Why equal volume base discounts are given
to intermediary
b. Levels of delivery service
c. 15% customers account for 90% of sales. Is
this pattern healthy?
d. Analysis reveal 12 % deliveries were at drop
sizes
e. Should distribution for appliances and spares
should be different?
Activities Costs Planning and Control

20. Recording audit observations & follow up
• Any distribution audit task would not be
complete unless the findings are discussed
with the responsible managers, and their
agreements are obtained, noted and recorded
in the audit report
• Compliance follow up meeting should be
agreed upon, and form part of the regular
distribution audit procedure
Activities Costs Planning and Control

21. Summary
• The expenses norms, the distribution
department can now use the same to
periodically review and control the expenses,
as well as monitor the efficiency and
effectiveness of the operation
• Key ration includes intermediary ratios and
grass root ration for transportation costs,
warehouse utilization etc.
Activities Costs Planning and Control

22. Summary
• Effective distribution audit of external and
internal factor should aim at rationalizing
distribution costs
• Compliance follow up meeting should be
agreed upon, and form part of the regular
distribution audit procedure
Activities Costs Planning and Control