: This case, based on a real-life situation of how logistics costs function in daily operations, aims to
provide students with the opportunity to understand how logistics costs are calculated and how the interorganizational
nature of these costs affects the profitability of two companies. The case hinges on understanding
cost behavior (fixed and variable) and on management control systems design. Although logistics costs represent a
small fraction of total costs in manufacturing companies, they can negatively affect the bottom line if left unattended.
Students are presented with data relating to a three-year project in the automotive industry that shows that the
project has been experiencing a sustained increase in costs that has eroded its profit margin. While it appears that
logistics costs are the problem, it cannot be verified until the contracts are studied. In addition, the financial- and
contract-related data provided are sufficient to extend the profitability analysis to the provider of logistics services.
This case is suitable for management accounting courses at the master’s or advanced undergraduate level; it has
been tested and well received by students who want to gain a greater understanding of logistics costs—their nature,
behavior, possible containment strategies, and inter-organizational effects.