CPL Logistics Cost Management & Financial Analysis 1 — Questions and Answers
Question 1: Which costing method assigns overhead costs to products or services based on the activities that drive those costs in a logistics operation?
- Standard costing
- Activity-based costing (ABC) (Correct answer)
- Marginal costing
- Absorption costing
Correct answer: Activity-based costing (ABC)
Activity-based costing (ABC) assigns costs by tracing them to the specific activities (e.g., receiving, picking, shipping) that consume resources, giving a more accurate picture of true logistics costs.
Question 2: Total Cost of Ownership (TCO) in logistics procurement includes which of the following beyond the purchase price?
- Only freight charges
- Only insurance premiums
- Acquisition, operating, maintenance, and disposal costs (Correct answer)
- Only invoice cost and duties
Correct answer: Acquisition, operating, maintenance, and disposal costs
TCO encompasses all costs incurred over the life of an asset or relationship, including acquisition, operating, maintenance, and disposal costs, not just the purchase price.
Question 3: A company's logistics cost as a percentage of sales is 8%. If annual sales are $50 million, what are the total logistics costs?
- $4 million (Correct answer)
- $40 million
- $8 million
- $6.25 million
Correct answer: $4 million
8% of $50 million = 0.08 × $50,000,000 = $4,000,000 in total logistics costs.
Question 4: Which financial metric measures the profit generated per dollar of logistics assets employed?
- Gross margin ratio
- Return on logistics assets (ROLA) (Correct answer)
- Current ratio
- Inventory turnover
Correct answer: Return on logistics assets (ROLA)
Return on logistics assets (ROLA) measures how efficiently logistics assets (warehouses, vehicles, equipment) generate profit, guiding capital investment decisions.
Question 5: In freight auditing, what is the primary purpose of conducting a pre-audit before paying carrier invoices?
- To renegotiate long-term contracts
- To verify charges are accurate and match agreed rates before payment (Correct answer)
- To evaluate carrier on-time performance
- To assess customer satisfaction scores
Correct answer: To verify charges are accurate and match agreed rates before payment
Pre-auditing freight invoices checks that billed amounts match contracted rates and shipment details, preventing overpayments and billing errors before funds are disbursed.
Question 6: Which cost behavior pattern remains constant in total regardless of changes in logistics volume within a relevant range?
- Variable costs
- Mixed costs
- Fixed costs (Correct answer)
- Step costs
Correct answer: Fixed costs
Fixed costs, such as warehouse lease payments or salaried staff, do not change in total as volume fluctuates within a relevant range, though cost per unit decreases as volume rises.
Question 7: A logistics manager uses a 'make-or-buy' analysis. Which factor most favors outsourcing a distribution function?
- High proprietary technology requirements
- Core competency alignment
- Lower total cost with third-party providers (Correct answer)
- Desire for tighter quality control
Correct answer: Lower total cost with third-party providers
When a third-party provider can perform the distribution function at a lower total cost than in-house operations, the financial case for outsourcing is strongest.
CPL Logistics Cost Management & Financial Analysis 1
Which costing method assigns overhead costs to products or services based on the activities that drive those costs in a logistics operation?