Distribution Costs


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Distribution Costs

 

the total expenditures related to the process of distributing products. By their economic nature distribution costs are subdivided into net and supplementary costs. Net costs result from the act of buying and selling and from changes in the forms of value in the process of selling commodities. These costs include expenditures for paying salaries to the sellers, advertising, keeping account books, and so on. Net costs are not productive in nature and do not add any value to the commodity. Supplementary distribution costs are productive; they involve continuing the process of production in the sphere of commodity circulation and increase the value of the product; these include expenditures for transporting the commodities, finishing them, storing them, putting them into sets, wrapping, packaging, and so on.

In the capitalist economy net distribution costs, which are paid for out of surplus value, constitute a significant percentage of total costs. That part of supplementary distribution costs which results from capitalist competition and speculation is also unproductive in nature. “The general law is,” Marx pointed out in the second volume of Das Kapital, “that all costs of circulation which arise only from changes in the forms of commodities do not add to their value. They are merely expenses incurred in the realization of the value or in its conversion from one form into another” (K. Marx and F. Engels, Soch., 2nd ed., vol. 24, p. 168).

The spontaneous economic development, aggravation of inherent contradictions, and bitter competitive struggle of capitalism lead to enormous nonproductive expenditures in the distribution sphere. These costs in the final analysis fall on the shoulders of the toiling masses because they are included in market prices. In the period of the general crisis of capitalism, distribution costs are rising continuously and constitute a significant part of the retail price of commodities. Expenditures for advertising are especially large.

Under socialism the essence of distribution costs changes fundamentally. Socialist ownership of the means of production makes it possible to organize the distribution sphere on the basis of a single national economic plan with minimum expenditures. Under socialist conditions distribution costs are the socially necessary expenditures of labor in this sphere as expressed in monetary form.

Commodity distribution in the socialist economy includes the processes of distributing the means of production and consumer goods. In the USSR the former are distributed through the material and technical supply system of the national economy, the latter through trade. Correspondingly, distribution costs consist of the expenditures resulting from the process of distributing the means of production (in the material and technical supply system) and the expenditures related to the distribution of consumer goods (in wholesale and retail trade and public catering). As socialist production develops, its scope expands, the system of national economic management is consistently improved, and labor productivity in the distribution sphere rises. Distribution costs in the USSR are relatively decreasing, even though their absolute magnitude is rising. The level of distribution costs in wholesale and retail trade in relation to the volume of retail commodity turnover in 1950 was 8.5 percent, whereas in 1970 it was 7.7 percent. The level of distribution costs in supply and marketing organizations in 1950 was 3.6 percent of the volume of commodity turnover; in 1970 it was 2.15 percent. On the other hand, the expansion of the service sphere and the rise in the quality of service given to customers both by the system of Soviet trade and public catering and by supply and marketing bodies naturally leads to an economically sound increase in distribution costs.

When planning distribution costs, it is important to analyze their structure and composition. In the material and technical supply system, distribution costs consist of expenditures for shipping, storage, finishing work, and the sale of the goods and of nonproduction and administrative expenditures. Shipping expenditures constitute about 46.8 percent of the total sum of distribution costs of supply and marketing bodies (according to 1970 figures), and about 49.3 percent goes for storage and finishing work and the sale of goods, 0.3 percent goes for nonproduction expenditures, and 3.6 percent is spent for administration. The first group includes the costs of rail, water, and also vehicle and carting shipping, loading and unloading work, and distribution among shops. The second group includes the wages of transportation and warehouse workers and the costs for rent and maintenance of buildings, structures, and equipment; routine maintenance; sorting, packing, and storing of commodities; interest for credit; and other items. The third group consists of costs recorded for insufficient deliveries and losses of goods en route and in the storage process. The fourth group consists basically of the wages of administrative personnel and expenditures for rent, routine maintenance, and maintenance of administrative buildings and equipment, as well as for business trips and mail and telegraph.

In the distribution costs of Soviet trade, wages paid to trade and public catering workers occupy the primary place. In retail trade, for example, wage expenditures are more than 45 percent of total distribution costs according to 1970 figures, and in public catering they are more than 60 percent. Transportation expenditures in retail trade are more than 16 percent, and in public catering they are about 7 percent. Expenditures to maintain the physical facilities of Soviet trade (the trade and warehouse network) occupy an important place in the structure of distribution costs. In 1970 these expenditures were about 15 percent of total distribution costs in retail trade and about 19 percent of such costs in public catering. As the physical facilities of Soviet trade develop, the share of these expenditures in the structure of distribution costs increases. In Soviet trade, distribution costs also include expenditures for storage; finishing work and packaging of commodities; repayment of credit; losses of goods during transportation, storage, and sale; and other expenditures.

The most important factors in further reducing the level of distribution costs are increasing the efficiency of the distribution sphere, ensuring optimal organization of paths of commodity movement, reducing intermediate elements in commodity movement, locating trade and supply and marketing organizations to best advantage and making continuous technical progress in this sphere, and increasing the speed of commodity turnover. The use of mathematical economic methods, computer technology, and scientific organization of labor in the management of the distribution sphere help reduce distribution costs.

Distribution costs are compensated for by the sum of trade and marketing discounts and markups, which are usually set as a percentage of the price of the commodities being sold. Reducing the level of distribution costs is a source for increasing the profitability of trade and supply and marketing organizations. The development of economic accountability and the use of the new system of planning and economic incentives are playing a large part in reducing the level of distribution costs and ensuring profitable work by trade and supply and marketing organizations.

REFERENCES

Marx, K. Kapital, vol. 2. In K. Marx and F. Engels, Soch., 2nd ed., vol. 24, ch. 6.
Bakanov, M. I. Ekonomicheskii analiz v torgovle. Moscow, 1969. Ostrovskii, E. A. Izderzhki khraneniia obshcheslvennogo pwdukta prisotsializme. Moscow, 1969.
Baskin, A. I., V. I. Odess, and P. V. Smirnov. Finansy i khoziaistvennyi raschel v snabzhenchesko-sbylovykh organizatsiiakh. Moscow, 1969.

A. A. IAKOBI

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