Cost allocation in transportation
Download
1 / 9

Cost Allocation in Transportation Assigning Costs on - PowerPoint PPT Presentation


  • 768 Views
  • Uploaded on

Cost Allocation in Transportation. Assigning Costs on Cause-Effect Basis. Efficient pricing requires that costs be allocated correctly to the service or customer that is creating the cost (i.e., on a cause-effect basis). Not all costs are easily traceable to a given service or customer.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Cost Allocation in Transportation Assigning Costs on' - johana


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Cost allocation in transportation

Cost Allocation in Transportation

Assigning Costs on

Cause-Effect Basis


  • Efficient pricing requires that costs be allocated correctly to the service or customer that is creating the cost (i.e., on a cause-effect basis).

  • Not all costs are easily traceable to a given service or customer.

    • Separable costs: costs that can be directly assigned

    • Common costs: “shared” costs



  • Activity Based Costing service may not be separable for another.: determining the activities that are required to perform a given service and attaching a cost to each activity.

  • Determining the appropriate unit of measure for costing and pricing in transportation is also complicated by the nature of transport costs.


  • How do TL firms price? LTL firms? Railroads? service may not be separable for another.

  • How do the following costs vary (i.e., what unit of measure would be best for allocating these costs)?

    • Fuel

    • Driver/crew

    • Equipment maintenance

    • Equipment capital cost (financial expense)

    • Parts

    • Dock labor



  • One last cost concept needs to be discussed: variable vs. fixed cost.

  • Variable costs –vary with volume of output

  • Fixed cost – firm incurs cost whether or not there is output

  • In transportation competing firms often have different cost structures: e.g., railroads vs. TL – railroads have higher FC

  • Public sector affects modal cost structures: infrastructure ownership and taxes


  • Cost structure affects pricing fixed cost.

  • Railroads utilize price discrimination (value of service pricing)

    • Railroads have few or no competitors in some markets

    • Different products have different price elasticity of demand for transportation service

    • Railroads charge higher “mark-ups” above VC (and thus recover more of their FC) from shippers in non-competitive markets and from high value products


  • Trucking firms and air freight carriers face rigorous competition in nearly every market.

  • Thus, trucking and air freight carriers utilize cost-based pricing across the board while product demand factors and transportation competition play a major role in railroad pricing. (This is why competitive access issue is so important to shippers.)


ad