AIP 3.5 Levels of Indirect Costs LO 4

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 traveled in kilometers.

Questions

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 traveled?

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