All About the Wholesale Business in Cost Accounting: Delivery

For the Delivery activity cost pool, we considered three cost drivers: number of pallets delivered, number of miles driven, and direct labor hours for drivers. The delivery activity begins once a customer’s order has been assembled. In the warehouse, pallets of goods that have been assembled to meet a specific customer’s order are loaded onto delivery trucks. Drivers employed by the wholesaling company will then drive these trucks to the customers’ place of business to make the delivery.
There are several activities that will affect the cost of delivering goods to customers. First, the number of pallets that comprise the order will determine the number of trucks that must make the delivery. Using the number of pallets as a cost driver, however, could be misleading. There could be an instance when a truck is not completely full. In this case, a truck will travel the same number of miles, use almost as much gas, and require drivers to be paid just as much as a truck that leaves the warehouse completely full. Thus, a full truck with 20 pallets will be allocated twice as much overhead as a half-full truck with 10 pallets, even though all the aforementioned expenses will be the same. For this reason, we dismissed ‘number of pallets’ as a potential cost driver.
Second, how far away the customer is geographically located from the wholesaler’s warehouse will determine the number of miles those trucks need to drive. There are several highly probable scenarios which make ‘number of miles driven’ also a less than ideal cost driver. For far-away deliveries, drivers may need to sleep overnight at their destination locations in order to meet legal requirements. For suburban and city deliveries, drivers will likely face slow-moving traffic other causes for delay. In either of these cases, the number of miles driven is negligible because the warehousing company will have incurred a significantly increased labor expense due to the delays.

The number of miles driven is not the only determinant of the amount of time required to make a delivery. A number of factors, including those mentioned above, will affect the number of direct labor hours that drivers must contribute to make deliveries. If a large delivery requires two trucks, then two drivers would be needed to complete the delivery. In a situation like this, the number of direct labor hours is doubled and reflects the extra cost required to complete that delivery. The direct labor cost for each order is directly traceable, based on which customer’s order is on the truck and how long it takes to get to them. There are various overhead costs associated with the delivery activity, however, that are indirect. Costs like cell phones, computers, mechanics, lodging, and insurance will all generally increase as drivers incur more hours on the job using these benefits. The fact that these indirect costs will rise with an increase in driver hours on the job, makes the number of direct labor hours for drivers the most accurate cost driver for the delivery activity. This is a duration cost driver.