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Since this book is concerned only incidentally with railroad rates, it will not attempt to analyze the methods by which the staff of the Interstate Commerce Commission has estimated out-of-pocket costs and apportioned residue costs.
Suffice it to say that the usefulness of the latter apportionment is questionable.
But in any event, full credit should be given to the Cost Section for its express and overt recognition of a vital distinction too often ignored in utility-cost analyses: namely, that between a cost allocation designed to reflect the actual behavior of costs in response to changes in rates of output of different classes of utility service ; ;
and a mere cost apportionment which somehow spreads among the classes and units of service even those costs that are strictly unallocable from the standpoint of specific cost determination.
2.
The single-step type
We turn now to a type of fully distributed cost analysis which, unlike the `` railroad type '', draws no distinction between cost allocation and cost apportionment: the single-step type.
It might be called the `` public utility '' type because of the considerable use to which it has been put in gas and electric utility rate cases.
Here no attempt is made, first to determine out-of-pocket or marginal costs and then to superimpose on these costs `` reasonably distributed '' residues of total costs.
Instead, all of the total costs are treated as variable costs, although these costs are divided into costs that are deemed to be functions of different variables.
Moreover, whereas in Interstate Commerce Commission parlance `` variable cost '' means a cost deemed to vary in direct proportion to changes in rate of output, in the type of analysis now under review `` variable cost '' has been used more broadly, so as to cover costs which, while a function of some one variable ( such as output of energy, or number of customers ), are not necessarily a linear function.

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