In July2007, the U.S. Postal Service altered its pricing strategy based on the results of an activity-based costing analysis. Specifically, the new rates were designed to encourage customers to use computer-readable mailing labels, which eliminate the need for human sorting, and to drop off magazines at a location closer to their final destination, which consumes fewer delivery resources. Customers who don’t alter their behavior when bringing items to the post office pay higher rates.

Required

a. What risk does the U.S. Postal Service assume when changing its pricing strategy based on activity-based costing? In general, what kinds of organizations are likely to benefit from such a strategy and what kinds are not?

b. If all customers changed their behavior, would the U.S. Postal Service experience immediate savings? What kinds of costs do you think are incurred for ‘human sorting” and “magazine delivery”? What actions would the U.S. Postal Service need to take to save money?