Retrieve the latest 10k for Amazon:
Write a 1-2 page summary outlining some of the major business segments, cost centres, or departments that make up the company (for example: consumers, sellers, enterprises, etc.). Then select two of the departments that you just described and give some examples of how those departments or segments might benefit from using process costing versus other costing techniques. Explain the reasons for your answer.
Review the SBT Short Paper Rubric located in the “Start Here” section of the course for more information on grading criteria. Keep the following points in mind:
- The business segments that might benefit from the use of process costing are identified.
- The benefits of using process costing are accurately identified and explained.
With the increasing competition in the global technology industry, Amazon has found it crucial to expand its marketing strategies (competitive strategies) that encompass active participation in international business. Amazon ideally operates under two key segments: international segment and the North American segment. Though, the company’s operations are highly integrated. The company’s latest financial statistics apparently reveals its net sales from North American segment to be $ 44517 (Amazon.com, 2013). This value represents a growth of 22% from the previous year. Equally, during the same period, the company reported a net sales figure of $ 29935 from its international segment; a 27% rise from the previous year (Amazon.com, 2013). Amazon’s sales mix between the international and domestic segments, in 2013, were 2:3 respectively (Amazon.com, 2013).
From a general perspective, Amazon’s costing systems comprises of multiple cost centres. These are basically the departments with the firm that do not directly contribute directly to the company’s aggregate profit, though they still costs the company some specific amount of funds. Cost centres are, however, considerably distinct from profit centres in the sense that, from an economic point of view, cost centres can only add up indirectly to a company’s profitability (McLean, 2003).
It’s evident from the operations of Amazon.com that it applies process costing system which forms an integral part of company’s overall business model. Departmental costs are accumulated through the entire production process for the products that cannot be distinguished.Normally,raw materials would be introduced at the beginning of the first process, other costs such as additional materials,labour,directexpenses;overheads will be added as work progresses through the production process.
Essentially, as output leaves the process to the next process, the cost is also transferred and therefore the cost of finished goods comprise of accumulated costs in all processes. The costs are added together at the respective departmental level and then apportioned with regard to their cost centres respectively.Another costing system is the job order costing which entails meticulous gathering of production costs that are attributable to precise units.
Process costing system of Amazon is of benefit as far as the two segments are considers i.e. the Northern and International. These two departments benefit from process costing systems as opposed to other costing systems in the following ways; In terms of the homogeneous products, the process costing systems is utilised by its two segments when the products are homogenous but when the products are distinctive, then the firm has to employ the job order costing. When the size of the production runs is big, process costing is on the other hand, when the size of the production runs is small, and then the job order costing becomes useful. The cost centres of Amazon benefit when the combination of costs and as a result it requires less keeping of records as compared to the job order costing which requires more record keeping given the fact that it has to charge costs centres to their cost drivers. For the billing of clients, job order costing is vital since it gives the costs expended, hence it is useful than the process costing in such a scenario.
Amazon Company produces a multitude of products in various subsets and then modifies the end products before shipments its paramount that it uses a hybrid system i.e. the elements of the two costing systems together.
Amazon.com. (2013).Annual report. Retrieved from
Kinney, M. R., &Raiborn, C. A. (2013).Cost accounting: Foundations and evolutions.
McLean, R. A. (2003). Financial management in health care organizations. Clifton Park, NY: Delmar Learning.