Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 23: Tradeoffs in Product Costing: The Statistical Impact of Cost Pool Formation Decisions
23. Tradeoﬀs in product costing: the statistical impact of cost pool formation decisions Alan Robinson, Richard Waterman and David Rawnsley 1. INTRODUCTION The accuracy of a product costing approach is often a compromise between the cost of data collection and analysis and the market and regulatory demands on a postal administration. As no postal administration has unlimited resources for product costing, identifying ways to reduce product costing expenses without signiﬁcantly reducing accuracy of cost measurement would free up resources to work on costing issues that could use greater attention. In an unregulated environment, costing eﬀorts are driven by market demand to tailor products and prices for individual customers. Freeing resources could allow a postal administration to develop accurate product costs and proﬁtability measures for more specialized products that appeal to small subsets of their customer base. In the increasingly competitive marketplace following postal liberalization, customers will expect that the postal supplier will bid for their business in the same manner that their other postal, transportation, and logistics suppliers do and these bids will likely include speciﬁc service and price parameters that reﬂect the demands that the customer places on the postal network. Finding more eﬃcient ways to develop accurate product costs should be a priority for postal administrations following postal reform, as it would temper the demand for increased spending on product costing and the associated data collection and analysis eﬀorts that a customer-tailored bidding process would require. In a regulated environment,...
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