Research on the Costing and Data Mining Based on ABC in Logistics Firms

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1 Research on the Costing and Data Mining Based on ABC in Logistics Firms Dong Mu, Lingyun Zhou and Shoubo Xu School of Economics and Management, Beijing Jiaotong University, Beijing , P.R. China Abstract. he costing and data mining of logistics costs will become increasingly imortant to all firms seeking cometitive advantages. Activity Based Costing (ABC) is considered as the otimized and most romising method of costing and controlling logistics cost now, and logistics cost data mining based on ABC is laying a very imortant role in business management. he aer firstly analyses the costing rincile of ABC for logistics rojects, and according to the basic rinciles of ABC and business management, the aer uts forward the basically technical route of logistics roject costing and data mining based on ABC for business management and decision-making, moreover, the concrete costing rocess and model of alying ABC are deduced, then the further alication forms of data mining based on ABC are summarized and elaborated for business management and decision-making. Keywords: Activity based costing, Costing, Data mining, Model, Decisionmaking l. INRODUCION With the develoment of economy, the imortance of logistics has been noticed by all countries. he growth in the imortance of the logistics function has significant imlications for a firm's cost accounting system and the management of logistics costs has become increasingly imortant due to their significant imact on roduct rofitability, roduct ricing, customer rofitability, and ultimately, cororate rofitability. Logistics can offer a key source of cometitive advantage through service differentiation or by reducing costs and increasing cororate rofitability. Nowadays it develos fleetly, and it is laying a very imortant role in economy develoment, so the accounting and control of logistics costs will become increasingly imortant to firms seeking a cometitive advantage. Logistics business is often oerated according to logistics rojects by logistics firms, thereby the cost of logistics roject is more and more imortant for logistics roject management and enterrise decision, so it must be calculated exactly. At resent, most enterrises in China calculate the cost resectively with the traditional cost accounting method. However, the traditional costing method has limitations in the costing of logistics, which rominently dislays that costing has not achieved the target of cost content integrity and indirect exense assignment rationality, so the costing results lose the objectivity and the olicy-making relativity. hen, the cost accounting and

2 468 Dong Mu, Lingyun Zhou and Shoubo Xu management not only is the bottle neck of the market develoment for logistics firms, but also is the sticking oint of effective oeration management and decision-making. So Chinese logistics firms will require more accurate and detailed logistics cost information from their cost accounting systems, and Chinese logistics managers require detailed information to determine how different roducts, customers, or suly channels affect the costs of roviding logistics services. he detail and comlexity of the cost information will corresond to the diversity roducts handled, customer requirements, or suly channels used. Activity Based Costing, which is considered the otimized and most romising method of costing and controlling logistics cost, so it is necessary and urgent to be introduced into the cost management of logistics firms [1]. And at resent, more and more enterrises in China adot ABC in cost management and get better effects. 2. HE PRINCIPLE OF COSING AND DAA MINING BASED ON ABC IN LOGISICS FIRMS 2.1 Costing Princile Based on ABC for Logistics Projects Logistics business is often oerated through logistics rojects in Chinese logistics firms. According to the oeration characteristics of logistics rojects and the basic rincile of ABC, namely that roduct manufacture induces activity and activity consume resources, then it induces cost[2], the consequence conclusion that the oeration of logistics service roject induces logistics activity and logistics activity consumes resources and induces logistics service cost is deduced. In order to narrate exediently, three concets of roer cost, direct cost and overhead cost are introduced. Proer cost is the cost which can be carried u to secific logistics roject and be aid to other enterrises or organizations directly, it includes the consigned logistics cost, comensation of breach of faith, insurance cost, cost of alying to customs and checkout cost, etc. Direct cost is the cost which can be carried u to cost object directly, so it concludes direct material, direct manower and roer cost. Overhead cost is the cost which can not be carried u to cost object directly. 2.2 Data Mining echnical Route Based on ABC for Logistics Projects According to the basic rincile and imlementation ste of ABC[3], the oeration rocess of logistics roject and the alication route of logistics rojects costing and cost management in Chinese enterrises[4], the technical route of alying ABC for logistics rojects in china is studied, then is got and illustrated in Figure 1.

3 Research on the Costing and Data Mining Based on ABC in Logistics Firms 469 Confirming all activities of logistics rojects Confirming and calculating resource consumtion of logistic rojects Confirming resource driver and congregating activity cost Partitioning activity centers and forming activity center cost ool Confirming activity driver and distributing activity center cost to logistics roject Calculating direct cost of logistics rojects Costing total cost and unit cost of logistics rojects Data mining based on ABC for business management and decisionmaking Figure 1. echnical Route of Alying ABC for Logistics Projects 3. COSING SEP AND MODEL OF APPLYING ABC FOR LOGISICS PROJECS 3.1 Confirming Activities of Logistics Project Confirming activities of logistics rojects should follow the rocess. (1) Firstly, activity information should be collected by using flow chart or gathering news. (2) Secondly, activities are identified according to cost-benefit rincile, and activity tache and amount are decided according to the cost nicety degree demand of logistics rojects and enterrise management. 3.2 Confirming and Calculating Resource Consumtion he alication of ABC doesn t change the total amount of resource. It changes the distributing rate of total cost between cost objects, so all resource consumtion information can be gained from the accountant sort book.

4 470 Dong Mu, Lingyun Zhou and Shoubo Xu 3.3 Confirming Resource Driver and Congregating Activity Cost he rocess should conform to the following aroach. he first ste is confirming resource driver. At first, the amount of resource driver should be confirmed. he decision deend on these factors: the correlation degree between cost driver and resource cost, the exectation definition of cost, the comlex degree of logistics service and so on. hen the right resource driver should be chosen. he choosing rocess should follow these rinciles, such as the cost-benefit rincile, correlation rincile, imortant rincile and lenitude rincile[5]. he second ste is calculating resource driver rate by equation (1). r i, ci and c i ri (i =1, 2, n ) (1) ai ai are resource driver rate, resource cost and resource driver amount of resource i resectively. he third ste is distributing the resource cost to activity and forming activity cost ool. Activity cost can be calculated by equation (2). c j n i1 r q c j is activity cost of activity j q and ij activity j. i ij ( j =1, 2,, m ) (2) is consumed resource i amount of 3.4 Partitioning Activity Center here are some rinciles of artitioning activity centers, such as homogeneity rincile, certain scale rincile, cost costing veracity rincile. hen activity center cost can be calculated according to these rinciles and equation (3). B k m j1 c w j jk ( k =1,2, q ) (3) w jk means whether j belong to activity center cost ool k or not. If j belong to activity center cost ool k, its value is 1, otherwise its value is 0. cost of activity center cost k. Bk is the total

5 Research on the Costing and Data Mining Based on ABC in Logistics Firms Confirming Activity Driver and Distributing Activity Center Cost here are some factors of confirming activity drivers, such as quantitative factor, homogeneity, the connection of between cost and benefit, the correlation degree of activity and consumed resources [6]. hen activity driver can be calculated by equation (4). B k Rk (4) Ak Ak is activity driver amount of activity center cost ool k. Rk is activity driver rate of activity center cost ool k. hen cost is distributed to cost object from cost ool by equation (5). C q k1 R Q k k =1,2,, s (5) Qk is activity driver amount of activity center cost ool k by object C. means the total overhead cost of object. 3.6 Calculating Direct Cost of Logistics Project Direct cost should be resectively calculated according to direct material, direct manower and Proer cost. Direct material can be calculated by equation (6). M v ( 1 w) Y G u =1,2, v (6) u1 u u M In the equation, is the direct cost of object, w is the roortion of Y callback scra relative to all materials, u is the unit rice of direct material u and Gu is consumed amount of direct material u by object. Direct manower can be calculated by equation (7). x L (1 ) ( =1,2,, x ) (7) 1 L is the direct manower cost of object, is work time amount of work tye, is the average standard ay er an hour of work tye and is the roortion of accessional ay relative to standard ay. Because the range of roer

6 472 Dong Mu, Lingyun Zhou and Shoubo Xu cost is big and roer cost of different logistics objects is different, roer cost of object, namely Z, must be calculated according to idiograhic conditions. 3.7 Calculating otal Cost and Unit Cost of Logistics Projects According to above results, the total cost of logistics roject, namely, can be calculated by equation (8). M L Z C (8) According to the above got equations, outsread the equation ste by ste, equation (9) is gained. = ( 1 w) Y u G u + 1 u v x 1 P (1 ) + q m n Z + k1 j1 i1 Because each logistics roject can be cost and get accurate cost results, then unit cost of cost object can be also calculated through equation (10). ' ' Q M L Z Q P C c q i ij A a k w i jk Q k (9) (10) in the equation is the unit cost of logistics roject. Q is the unit amount of logistics roject.every logistics enterrise can get different cost results according to different costing unit, then get wished data for cost management and enterrise innovation. 3.8 Calculating otal Logistics Cost of Enterrises Because ABC is a comlete cost calculating method, all logistics cost can be got through equation (11). s s 1 1 M L Z C P (31) of the equation means the total logistics roject cost of one enterrise. It can offer a standard for cost control, caital budget, etc.

7 Research on the Costing and Data Mining Based on ABC in Logistics Firms DAA MINING BASED ON ABC FOR BUSINESS MANAGE- MEN AND DECISIONS Activity Based Costing is the otimized and most romising method of costing and controlling logistics cost. he establishment of its alication ste and costing model is the kernel of alying ABC for any logistics roject in Chinese enterrises. It decides the definition of enterrise cost data, then, it affects the enterrise innovation and decision. However the ABC alication of logistics enterrises is not merely one method accurate calculation cost, its real value should be the significantly auxiliary decisionmaking functions of using obtained correlative ABC cost data in different enterrise management asects. he main urose of using the ABC for enterrises is as follows: the enterrise can obtains the articular and accurate cost data of each logistics activity of oeration through the imlementation of ABC [7], then enterrises use obtained cost data and make the further data mining and rocessing, thereby make ABC rovide the suorting basis and the guidance function for enterrise's daily digitization oeration and information management as well as the related forecast and evaluation analysis and so on According to the correlation analysis, the suort business management alications of using obtained ABC cost data are elaborated for logistics enterrises, namely the alication atterns based on ABC are concluded for logistics enterrises, such as the ricing decision-making alication of logistics service rojects, the alication in logistics cost budget system, the alication in logistics business rocess reengineering, the alication in the erformance evaluation based on activity, the analysis alication of customer rofit ability and decision-making, the cost control alication of logistics activity and so on [8].he data mining modes based on ABC for business management and decisions is illustrated in Figure 2. Pricing decision Customer analysis Logistics cost budget Data mining base on ABC Performan ce evaluation Logisti cs cost t l Business Process Reengineerin Figure 2. Data Mining Modes of ABC for Logistics Enterrises In addition, the information obtained from ABC can suort such key logistics decisions as determining needs for warehouse sace, identifying warehouse locations, choosing between ublic or rivate ownershi, imlementing automation, etc.

8 474 Dong Mu, Lingyun Zhou and Shoubo Xu 5. CONCLUSIONS According to the research, here we may draw the following conclusions. (1) ABC achieves greater accuracy of logistics for Chinese logistics firms than traditional costing techniques by using multile cost drivers. raditional techniques tyically rely on one to three volume based cost drivers to trace overhead costs to roducts. ABC uses multile cost drivers to reflect different relationshis occurring between activities and the resources they consume. (2)he analyzed costing rincile, ste and model of alying ABC for logistics rojects are logical and feasible in this aer. It can rovide tracking of logistics costs for Chinese logistics firms. his can be of articular value in tracking logistics roducts or customers for Chinese logistics firms. (3) ABC can rovide financial suort data structured for logistics rojects in a fashion fundamentally different from accounting data rovided in the general ledger. By associating cost to the logistics activity, a clear relationshi can be established between sources of logistics activity demand and the related costs. his association can benefit the Chinese logistics firms in determining where logistics costs are being incurred, what is initiating the logistics costs and where to aly efforts to control inflationary logistics costs. (4) he alication of ABC is not merely one method of costing accurately, its real value should is the significantly auxiliary decision-making function in business management of Chinese logistics firms. ABC is a management decision-making tool. Chinese logistics firms can use obtained cost data and develo the further data mining and rocessing for cost management and relevant decisions. he increased visibility of logistics costs will serve several uroses for the Chinese logistics firms: the identification of more direct costs, a better understanding of rice/volume relationshis, the oortunity to address significant cost reduction oortunities, better evaluation and justification of logistics investments and customer, the budget of logistics cost budget, the cost controlling of logistics cost and so on. REFERENCES 1. S. Dan and B. Douglas, ABC/M: Which comanies have success?, he Journal of Cororate Accounting & Finance. Volume 12, Number 3,.35-38, (2001). 2. R. Coer, he rise of activity-based costing-art one: what is an activity-based cost system? Journal of Cost Management. Volume 2, Number 2,.45-54, (1988). 3. A. Bharara and C.Y. Lee, Imlementation of an activity-based costing system in a small manufacturing comany, Journal of International Production Research. Volume 34, Number 4, , (1996). 4. G.L. Fu, Logistics Cost Management (China Material Press: Beijing, 2004). 5. X. Zhao and L. Xu, Combination of activity driver of ABC, Industry Engineering. Volume 7, Number 6,.30-32, (2004). 6. Y.S. Li and H. Yin, Logistics Cost Management (China Machine Press, Beijing, 2005). 7. I. John, he use of activity-based information: A managerial ersective, Management Accounting. Volume 77, Number 11,.80-81, (1999). 8. P. Mike and P. Lew, An integrated framework for activity-based decision making, Management Decision. Volume 36, Number 9, , (1998).