FedEx: Activity-Based Costing

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The organization is FedEx, the logistics company, and specifically its Express business unit, which is focused on overnight courier activities. The time period is generic basically the activities are repeated day over day. Product costing is important for the company, knowing that most of the cost structure is fixed costs. Normally, FedEx looks at service costs at the route level, and then the fixed costs related to the entire network that brings packages to customers around the world. Activity-based costing takes a different approach, so that the costing might not be at the route level, but based on other means of breaking the company's activities down. At FedEx, a good way of breaking down costs is by customer. For example, some customers are served by multiple couriers, but there is also the question of where the customer sends their packages to, and what type of packages they send. These are things that FedEx accounts for in its pricing scheme already. Packages that are larger cost more; packages that go farther cost more. But there is more that goes into servicing these accounts. For example, accounts have sales and service representatives. Typically, these have large territories, so the expectation is that most accounts will require little service beyond that which the courier provides. A rep might visit a medium-sized customer once a year, and a large customer 2-3 times per year. A station manager might deal occasionally with the largest customers in the area. A
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