In the airline business, there are very few costs that can be traced directly to each individual customer. Instead, there are numerous indirect costs associated with flying passengers, including depreciation of aircraft, fuel, salaries for pilots, flight attendants, ground personnel, and management staff, and related overhead. As a result, airlines use allocation and averaging to determine the estimated cost of providing transportation services to customers.
For what other business decisions may it be impossible to calculate the actual cost per customer? What are some of the dangers of basing decisions on estimated rather than actual costs? How can these dangers be minimized?