In a recent Wall Street Journal article (“The Price You Pay forWater at the Airport,” Scott McCartney, April 22, 2015), the costof a bottle at various airports was compared to the cost of thatsame bottle of water at a convenience store.
A 20-ounce bottle of Dasani water typically costs about $0.99 ata convenience store. At the JFK International airport in New YorkCity, that bottle of Dasani water is $2.89.
An airport store operator interviewed for the WSJ story statedthat the costs of operating airport shops are more expensive thanother retail stores because:
- Off-airport warehouses are needed due to limited inventoryspace
- Deliveries to stores are usually made during off-peakhours
- Deliveries are made in small batches so that everything can gothrough airport security screening
Discussion Questions
- Is the cost of an off-airport warehouseconsidered to be a unit-level, batch-level, product-level, orfacility-level cost as it relates to:
- The airport store
- An individual bottle of water
- In an activity-based costing system, what costs would beconsidered to be part of the cost of an individual bottle of Dasaniwater at the airport?
- Would the airport store be likely to use the ABC cost for waterpricing? Why or why not?
- Would activity-based costing or activity-based management beuseful for the airport store? Why or why not?
