WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Blog
  • Free Video Tutorials
  • Courses
  • All In One Bundle
  • Login
Home » Accounting Tutorials » Budgeting Tutorials » Distribution Cost

Distribution Cost

By Niti GuptaNiti Gupta | Reviewed By Dheeraj VaidyaDheeraj Vaidya, CFA, FRM

What is Distribution Cost?

Distribution cost is the sum total of all those expenses which are incurred by the producer of a product in order to make possible the delivery of the product from its location to the location of the end customer. Thus, for a manufacturer, it includes all those expenses which are incurred to make possible the delivery of the product from its production site to the customer’s location, whether retailer, wholesaler or the final customer.

Explanation

An item is manufactured at the production site, say factory, and are then kept at the warehouse for their distribution to the potential customers afterwards. To deliver the product from the warehouse to the customer’s location, the producer may be incurring several expenses, including but not limited to shipping costs. Thus, it includes all those expenses which are necessarily incurred for making the delivery to the customer. The same is usually recovered from the customer by way of adding the same in the per-unit price of the product.

Distribution Cost

Distribution Cost Examples

#1 – Freight Cost

Freight Cost refers to the transportation expenses which are incurred for transferring the product from the manufacturer’s location to the customer’s location. It can either be incurred by the customer itself or maybe first incurred by the manufacturer and then recovered from the customer by way of including the same in the price of the product.

#2 – Storage Cost

The products, once manufactured, are kept for storage at the warehouse until they are sold to the customer. A manufacturer incurs expenses concerning the storage of the products in the warehouse, such as warehouse rent, which forms part of the distribution cost.

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course

#3 – Product Handling Cost

It includes costs related to the maintenance of the products kept at the warehouse. It will consist of all those expenses which are incurred to maintain the quality of the product and to keep them in good condition.

#4 – Direct Selling Expenses

A manufacturer may incur expenses directly in relation to selling the product or to attract customers to buy the products. Examples of such expenses include a salary of marketing personnel (only who are involved in targeting customer sales), training costs, office expenses necessary for sales, etc.

#5 – Advertisement Expenses

Advertisement expenses also form part of the distribution costs. Such cost helps a manufacturer, especially to develop its presence in new areas. Examples may include amounts spent on advertisements done by way of hoardings, newspapers, media channels, and so on.

#6 – Managerial Personnel Cost

Apart from these costs, this may also include other expenses such as the cost of managerial personnel involved in warehouse management, packaging cost,  and so on.

Benefits of Distribution Cost

  • When a manufacturer develops an efficient distribution system, it enables it to obtain a competitive edge over others. It is because such a manufacturer will be able to fulfil its delivery commitment to its customers in time and much quicker.
  • The quality of the products is improved by incurring costs such as packaging costs, quality control costs, and so on.
  • The customers can take advantage of better-quality products, and the manufacturer enjoys goodwill.
  • The trust of customers is increased when distribution costs, such as transportation costs, are directly met by the manufacturer.

Importance

The costs that are incurred over the distribution network of a manufacturer helps it in its customer building and customer management. It is so because the costs will keep the products look presentable and thereby enhance sales. Also, there are several distribution networks one may follow, which will help in the quicker and smooth delivery of the products. If a company engages a proper distribution network, it also helps it to target specific audiences and mass audiences.

Recommended Articles

This article has been a guide to What is Distribution Cost & its meaning. Here we discuss the distribution cost analysis and importance along with benefits. You can learn more about from the following articles –

  • Cost Drivers
  • Cost Control
  • Cost Structure
  • Cost Basis
  • High-Low Method Formula
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More