In recent years, the United States Postal Service (USPS) has experienced declining revenues, largely due to the increase in digital communications such as e-mail. These declining revenues have led the USPS to experience financial losses. On February 16, 2012, the USPS issued a report titled Plan to Profitability: 5 Year Business Plan, which outlined the problems facing the USPS and the actions needed to address them.

To obtain a copy of the report, type USPS Plan to Profitability into an Internet search engine or search for USPS Release 12-029. This should take you to a link where you can view and download the 28-page PDF document. You may want to review the entire document, but at a minimum you need to read the following pages: 35, 810, 1214, and 26. (This is not as much as it seems as the print is large and there are lots of graphics.) Note: the report uses the acronym RHB, but does not define it. RHB stands for Retiree Health Benefits and represents money that Congress appropriated to help the USPS.

Required:

Based on the information on page 4, summarize the basic factors contributing to the USPS's financial difficulties.

Based on the information on pages 8 and 9, in 2011 what percentage of the USPS mail volumeresulted from delivery of first-class mail, and what percent of the USPS profit was derived from first-class mail?

What percentage of the USPS costs is due to compensation costs? From the USPS's point of view, are these costs more fixed or variable in nature, relative to the volume of mail delivered?

Page 26 of the report discusses sensitivity analysis. Based on these data, if USPS's volume of activity were to increase by 1 percent, by how many dollars would revenues and profits be expected to increase? If USPS's price were to increase by 1 percent, by how many dollars would revenues and profits be expected to increase? With respect to the increase in price, how can the USPS expect that the dollar amount of increase in profit would be higher than the increase in revenue? (See the footnote.)

Based on the information on pages 12 through 14, summarize the proposals the USPS made to return to profitability. What percent of the proposals can be implemented without the approval of Congress? Do most of the proposals for cost reductions relate to reducing fixed costs or variable costs? Explain.