Distribution costs are all the disbursements incurred by a producer to deliver their products, from their manufacturing plant to the place where they are purchased, thus constituting a fundamental component of the total cost for the producer and the price paid by the products. consumers, therefore their analysis is of great importance in terms of business efficiency.
Distribution costs, definition
All the expenses that are made to put the product on the market and obtain the recovery through the sale. (Reyes, p.121)
The utility of any industrial company is achieved by distributing its products: it is manufactured to distribute, that is, so that the products reach the hands of those who need them, a function in which multiple factors intervene whose valuation is called costs distribution and whose importance from the economic point of view lies in its influence to modify the demand for products, both in their magnitude and their elasticity. … The distribution includes all the activities necessary to convert the manufactured item into money: it covers the selling expenses, the administration expenses and the financing expenses related to this activity. (Market, p.310)
Analysis of distribution costs
There are four factors to consider when applying distribution costs, Market (p.310):
- The creation of demand: how the interest of consumers towards the product is aroused, includes, among other activities, advertising and sales promotion. Obtaining the order: includes the expenses inherent to the sales force. Product handling and delivery: includes transportation, storage and other logistics activities. Control of the sale: includes the investigation and opening of the credit, accounting routine for its registration, preparation of the sales analysis, collection service and all other inherent functions until the sale is translated into money.
Analysis by nature or type of cost
Intense competition and the need to expand the product market are the reasons that have initially prompted large companies to analyze distribution costs. The physical volumes of production depend on the needs of the market, and these in many aspects have the characteristic of being substitutable. production volumes cannot be sustained only by relying on good product quality, but also on direct and immediate work carried out by the sales department.
Analysis by regions or geographical areas
This method has its origin in accounting by areas of responsibility, which avoids certain dangers of arbitrarily spilling distribution expenses among market segments, which can create some confusion, which can be avoided if when establishing the cost system of distribution, certain control factors are used, that is, the cost determined by geographic area.
Analysis by clients
This analysis determines how much a customer costs for the company, which we will achieve if you have a good distribution cost system.
Analysis by distribution channels
For sales management, as well as for marketing management, it is convenient to periodically evaluate the cost of the distribution channels in order to apply the corresponding administrative guidelines.
Evaluation of a product line
Another area in which cost accounting plays an especially important role is known as determining the potential performance of product lines. The determination of the potential yield of the product consists of determining the possibilities that each unit of merchandise has in a warehouse to obtain profits. Each item is considered a responsible profit center and consequently we can determine, at any given time, the profits that a certain line of items is producing.
Profitability based on order size
When the distribution costs are analyzed by order amounts, those costs that vary in proportion to the number of orders processed, provide a logical application basis to be able to obtain the profits generated by each order.
Selection of alternative distribution channels
When we refer to alternative channels we want to indicate that the distribution is carried out through two channels, one can be a wholesaler and the other a retailer, which generally work on a commission basis, while the shipment of merchandise, billing and collection runs by the manufacturer. The analysis of the costs of the optional sales channels is one of the aspects in choosing the right distribution channel.
Determination of the optimal number of sellers
When the costs for each seller are very high, the management of the company will have to consider this situation and cancel the one they consider necessary, in order to work with the sellers that are actually needed; On the contrary, if costs are low, the addition of new personnel may be essential to have a more aggressive distribution.
Next, Professor Jorge I. Lardizábal, from the Austral University of Argentina, makes an introduction to distribution costs and their analysis.
Bibliography
- Market, Salvador. Programmed marketing: principles and applications to guide the company towards the market, Editorial Limusa, 1997 Reyes, Ernesto. Cost accounting, Editorial Limusa, 2005.
