In a Wall Street Journal article ("The Price You Pay for Water at the Airport," Scott McCartney, April 22, 2015), the cost of a bottle of water at various airports was compared to the cost of that same bottle of water at a convenience store. A 20-ounce bottle of Dasani water typically costs about $0.99 at a convenience store. At the JFK International
airport in New York City, that bottle of Dasani water is $2.89.
An airport store operator interviewed for the WSJ story stated that the costs of operating airport shops are more expensive than other retail stores for a few reasons. Off airport warehouses are needed due to limited inventory space. In addition, deliveries to stores inside airports are usually made during off-peak hours. Finally, deliveries must be made in small batches so that everything can go through airport security screening.
1. Would the cost of an off-airport warehouse be considered to be a unit-level, batch level, product-level, or facility-level cost as it relates to:
a. The airport store
b. An individual bottle of water
2. Would the costs of a delivery of two cases of Dasani water to the store inside the airport from the off-airport warehouse be considered to be unit-level, batch-level, product-level, or facility-level costs as they relate to (consider each cost you listed in the first requirement separately):
a. The airport store
b. An individual bottle of water
3. Would the airport store be likely to use the ABC cost for water pricing? Why or why not?
4. Would activity-based costing or activity-based management be useful for the airport store? Why or why not?