A railroad company is trying to decide how to charge its customers for carrying freight.

A manager suggests the following would be a good measure upon which to base the price of transporting freight: multiply the weight in kilograms times the distance travelled in kilometers.

a. What types of customers will the railroad company tend to lose to other transport companies, if the railroad company decides to charge customers based on kilograms times kilometers travelled?

b. Suggest a pricing system for freight based on the concept of activity-based costing.