Calculating Costs of Building an Activity-Based Costing System

17,160 workers and drivers picked, packed and delivered 56,500 shipments today. Which ones cost more money than you're getting paid? In this hypothetical example, the $2.5B shipping arm of a large manufacturer wants to know why its profit margin has been decreasing. It has decided to install activity-based costing software to find the holes in its 33 major distribution centers. The project team first assesses the activities that make up the processing and fulfillment of an order; here, the process takes about four to six months. Much of the data for the analysis comes from existing financial, human resources and other databases. But more detail is necessary about what actually takes place while packing and unpacking trucks. New barcoding terminals at each loading bay collects additional shipment and worker information. After the investigation stage, the team builds templates within the software, and tests them at five pilot locations. After another four to six months, the company is ready to set up the remaining 28 locations at a rate of one to two per month.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.