What are some of the problems which the use of Common Costs raises for Cost of Service Pricing,particularly the Average Cost approach?
A) Rates based upon average or fully allocated cost makes it necessary to apportion common costs by some arbitrary means.
B) Motor carriers are structured such as to make allocation extremely difficult.
C) Rail carriers have difficulty defining their common costs as they have wide spread geographic operations
D) All transport firms have significant difficulty with cost concepts due the very nature of their operations

Question

Quizplus · Accepted Answer

The use of common costs raises problems for cost of service pricing, particularly with the average cost approach, because rates based on average or fully allocated costs require the apportionment of common costs through arbitrary means. This can be difficult and may result in inaccuracies in pricing. The other options listed (B, C, and D) are potential issues for transport firms, but they are not specific to the use of common costs in cost of service pricing.

What Are Some of the Problems Which the Use of Common