Analysis of Costing and Pricing Issues for Jayde Transport Company

This report, prepared by ABC Consultancy Firm for Jayde Transport, an Australian freight transport company, addresses critical costing and pricing issues. The report highlights the challenges in accurately identifying cost units and allocating costs within the service sector, particularly in transportation. It recommends the adoption of Activity-Based Costing (ABC) to better identify profitable activities and allocate resources effectively. The report suggests using a cost-plus pricing technique to determine service prices. The consultancy firm proposes these strategies to enhance Jayde Transport's profitability and competitiveness, referencing relevant research and outlining recommendations for implementation. The document includes meeting minutes and an agenda for the consultancy team.

Running head: COSTING AND PRICING ISSUES
COSTING AND PRICING ISSUES
Name of the Student:
Name of the University:
Author’s Note:

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Memorandum
Memo to: Board of Directors
Company: Jayde Transport
From: ABC Consultancy Firm
Subject: Discussion of costing and pricing policies
Date: 09/01/2018
As per the discussions which were held in the meeting the company Jayde Transport needs to
revise the current pricing strategy and also introduce a proper costing procedure which can
improve the business’s profits. Jayde Transport is an Australian Freight Transport Company
is engaged in the service sector business of transportation by rail and road which involves
interstate transport services, wharf cartage and various goods transport which includes
warehousing and distribution of the same. The company operates in Australia and is
considered to be a reliable service provider in Australia. The analysis and recommendations
of ABC Consultancy firm which are applicable to Jayde transport business are given below in
point form:
1. Most of the organisations involved in service sector follow operating costing method
for computation of costs. In this method cost are allocated by identifying the cost
units which are most suitable for the business, for example in a transport business the
cost unit normally is time or passenger/km or goods/km. The first major problem that
any service providing business faces is to correctly identifying the cost unit which
will be measuring standards for the costs and pricing techniques. Secondly there is a
problem of taking into consideration of all factors from where cost arises. In a

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production line of business it is easy to identify each and every cost items but in a
transport company a certain rate has to be ascertained on the basis of which
calculations can be made distance wise. Thirdly there may be more than one cost units
available for a service providing business which may cause confusion which cost unit
to consider, for eg in a transport business there is passenger or goods per distanced
travelled and there is a another one which is on a time basis maybe hourly basis.
2. In case of Jayde transport they compute their costs on the basis of distance covered
and goods weight also comes into consideration. In case of transportation services
provided to passengers then the calculations is done on the basis of the distance which
is travelled by per passengers. The difficulties that the business faces is in identifying
the proper cost unit which can be selected for the purpose of cost computations and
determining the price that is to be charged. Another difficulty which arises in the
calculations of cost is that the problem of identifying the different areas where costs
are incurred. The service sectors are different from production business which has
inventory costs and such costs can be divided into direct material and direct labour
costs. However this is not applicable in case of service providing businesses.
3. As per the analysis of cost and pricing structure of Jayde Transports, ABC
consultancy firm can suggest the application of Activity Based Costing (ABC
method) can bring about improved results in cost and pricing structure of the business.
Activity based costing is a technique which identifies particular activities in an
organisation and then allocate the cost of the activity on the resources on the basis of
consumption of the resources by that particular activity. The activities of the business
are classified into categories which are Category A, Category B and Category C
respectively. In such a way business can chose which activity is profitable and which
are less profitable. This is significant in the service sectors as the method measures

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the profitability on the basis of activities and ranks them accordingly. As direct
material and labour costs are not so much applicable in a service sector business,
therefore the main cost components are absent. However these businesses do need to
have an correct cost figure which they will incur in a business in order to plan the
price for the services and ensure that profit is being earned. The common things
which a service must need to find out is which services are profitable and where
should be the focus of the business and the basis of setting prices of various services.
Jayde Transport should adopt the Activity Based costing techniques which would then
identify each activity and then rank the activities to identify which activity or service
is earning the company the maximum percentage of profits. The company can then
ensure that maximum of the resources and costs which are incurred by the company
are directed towards the services which are earning the company maximum amount of
profits in a rank order wise. Activity Based Costing has become increasingly
important for companies who have more competitors. Since ABC is really about cost
management, using it allows service companies to reduce and control their costs in
order to make correct pricing and other decisions, and to increase their profitability.
As for the pricing technique the company should apply cost plus pricing technique. In
this method the prices are calculated on the basis of costs. The cost figure as obtained
by the company is added with a certain percentage of profit which the management
decides. The percentage of profit which is to be added is entirely up to the judgement
of the management.
ABC consultancxy firm can provide Jayde Transport with the following recommendation:
a. Jayde Transport should incorporate Activity Based Costing technique in their costing
structure in order to make the costing process more effective

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b. The company should follow cost plus pricing techniques and charge the clients on the
basis of distance travelled or on the weight of the goods which is being transported.
c. The company need to ensure that the costs are directed towards the services which
earns the company maximum amount of revenues.
ABC consultancy firm has previously incorporated such a strategy in another service
sector firm and the firm is performing well with the new cost system implemented in their
process. ABC consultancy firm would like to offer the same services to the management of
Jayde Transports and the company can rest assured that the company will notice significant
changes in their cost and pricing structure if the company accepts the services of ABC
consultancy firm.

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Reference
Dong, J., Liu, C. and Lin, Z., 2014. Charging infrastructure planning for promoting battery
electric vehicles: An activity-based approach using multiday travel data. Transportation
Research Part C: Emerging Technologies, 38, pp.44-55.
Emblemsvåg, J. and Bras, B., 2012. Activity-based cost and environmental management: a
different approach to ISO 14000 compliance. Springer Science & Business Media.
Tsai, W.H., Lee, K.C., Liu, J.Y., Lin, H.L., Chou, Y.W. and Lin, S.J., 2012. A mixed
activity-based costing decision model for green airline fleet planning under the constraints of
the European Union Emissions Trading Scheme. Energy, 39(1), pp.218-226.
Schulze, M., Seuring, S. and Ewering, C., 2012. Applying activity-based costing in a supply
chain environment. International Journal of Production Economics, 135(2), pp.716-725.
Nagle, T.T., Hogan, J. and Zale, J., 2016. The Strategy and Tactics of Pricing: New
International Edition. Routledge.
Liozu, S.M. and Hinterhuber, A., 2013. Pricing orientation, pricing capabilities, and firm
performance. Management Decision, 51(3), pp.594-614.
Dee, P., Hanslow, K. and Phamduc, T., 2014. Measuring the cost of barriers to trade in
services. In Services Trade Reform: Making Sense of It (pp. 97-123).
Enderwick, P. and Enderwick, P., 2013. Some economics of service-sector multinational
enterprises. Multinational Service Firms,(London and New York, NY: Routledge, 1989), pp.3-
34.

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Team Agenda
AGENDA
Team Name: .ABC Consultancy Firm
Team Members: Rick Thomson, Eric Jordon, Cassius Gomes, Xavier Alan
Date @ Time 5th January 2018 @ 3.00 p.m
Location ITEM ABC Consultancy firm office
Present/Welcomed- All members, chaired by Cassius Gomes
Apologies -
Minutes
Discussion/decision items - Cost and Pricing issues of Service firms.
Any other business
Meeting closed 5.00 p.m
Next meeting 8 th January 2018

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MINUTES OF MEETING
Team Name: ABC Consultancy firm
Team Members: Rick Thomson, Eric Jordon, Cassius Gomes, Xavier Alan
Date @ Time Location: 5th January 2018 5.00 p.m
Items Notes Actions
Present/Welcomed All members, chaired
by Cassius Gomes
Apologies
Minutes Cost and Pricing Issues
Discussion/decision
items
Cost and Pricing issues
of Jayde Transports and
how to convince the
Board of directors of
Jayde Transports to
render the services of
the consultancy firm.
Eric Jordan
Any other business Present Rendered Services
Meeting closed 5.00 p.m
Next meeting 8th January 2018
MINUTES CONFIRMED Cassius Gomes
5th January 2018 (DATE)