Logistics Costing and Finance Flashcards

Which capital budgeting technique calculates the present value of all future cash flows from a logistics investment minus the initial cost, to assess whether the investment adds value?

Answer: Net present value (NPV)

Net present value (NPV) discounts all expected future cash inflows and outflows to present value and subtracts the initial investment; a positive NPV indicates the project adds value.

In logistics costing, 'detention' charges are incurred when:

Answer: A carrier's trailer or container is held beyond the contractually agreed free time at a shipper or receiver's facility

Detention charges compensate carriers for lost asset productivity when their equipment is held at a shipper's or receiver's dock longer than the free time allowed in the contract.

The term 'cube utilization' in warehousing finance refers to:

Answer: The ratio of actual storage volume used to the total available cubic storage capacity

Cube utilization measures how effectively the warehouse's three-dimensional storage space (volume) is being used, directly impacting cost per unit stored and return on facility investment.

Which of the following is an example of a variable logistics cost?

Answer: Fuel costs that increase with miles driven

Variable costs change in proportion to activity level; fuel costs increase directly as vehicles travel more miles, making them a classic variable logistics cost.

A 'shipper of choice' program primarily benefits a company by:

Answer: Securing preferred carrier capacity and better rates by providing consistent, easy-to-handle freight and reliable volumes

Shippers of choice earn preferential treatment from carriers—better rates, priority capacity, and service—by being reliable partners with consistent volumes, accurate paperwork, and quick loading/unloading.

When comparing logistics outsourcing to in-house operations, which cost is most often underestimated in total cost of ownership (TCO) calculations?

Answer: Hidden costs such as management oversight, transition expenses, and service failure risk

TCO analyses frequently overlook hidden costs of outsourcing—management time for vendor oversight, transition/integration costs, and costs from service failures—leading to underestimated true expense.

In supply chain finance, 'supply chain financing' (or reverse factoring) primarily helps:

Answer: Buyers extend payment terms while allowing suppliers to receive early payment at favorable rates from a financial institution

Reverse factoring allows buyers to extend payment terms without harming suppliers, who can receive early payment from a bank at rates tied to the buyer's credit rating rather than their own.