not accrued in the same proportion as volume-variable costs. This is demonstrated in Figure IV-1 below. Figure IV-1 Component Marginal Cost Curve Figure IV-1 represents the marginal costs for a cost component with three products as represented by the three areas separated by vertical bars. The first product is responsible for six units of the cost driver; the second product is responsible for six units of the cost driver; and the third product is responsible for eight units of the cost driver. The blue rectangular area at the bottom represents volume-variable costs, and the green area on top represents inframarginal costs. Under the current cost attribution system, the area in blue is attributed to products in the proportions shown above as volume-variable costs. Under Proposal One, the inframarginal costs would be attributed in the same proportions, even though Figure IV-1 demonstrates that those costs were not incurred in the same proportion as volume-variable costs. This illustrates a key characteristic of volume-variable costs: they are the minimal marginal costs that are incurred at every level of cost driver and can therefore be attributed by a distribution key. Furthermore, there are multiple ways in which cost drivers can be ordered. The Postal Service does not precisely know the order in which it handled each product. Returning to the hypothetical in Figure IV-1, it is entirely possible that the product that is responsible for eight units of the cost driver is the first product handled, which would change the amount of inframarginal costs by each product. The uncertainty “incurred” associated with the order of cost drivers renders the pre-existing distribution keys inaccurate for the purpose of allocating inframarginal costs.
not accrued in the same proportion as volume-variable costs. This is demonstrated in Figure IV-1 below. Figure IV-1 Component Marginal Cost Curve Figure IV-1 represents the marginal costs for a cost component with three products as represented by the three areas separated by vertical bars. The first product is responsible for six units of the cost driver; the second product is responsible for six units of the cost driver; and the third product is responsible for eight units of the cost driver. The blue rectangular area at the bottom represents volume-variable costs, and the green area on top represents inframarginal costs. Under the current cost attribution system, the area in blue is attributed to products in the proportions shown above as volume-variable costs. Under Proposal One, the inframarginal costs would be attributed in the same proportions, even though Figure IV-1 demonstrates that those costs were not incurred in the same proportion as volume-variable costs. This illustrates a key characteristic of volume-variable costs: they are the minimal marginal costs that are incurred at every level of cost driver and can therefore be attributed by a distribution key. Furthermore, there are multiple ways in which cost drivers can be ordered. The Postal Service does not precisely know the order in which it handled each product. Returning to the hypothetical in Figure IV-1, it is entirely possible that the product that is responsible for eight units of the cost driver is the first product handled, which would change the amount of inframarginal costs “incurred” by each product. The uncertainty associated with the order of cost drivers renders the pre-existing distribution keys inaccurate for the purpose of allocating inframarginal costs.
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