ewps_Ch21_Case1 - Decision Case 1(30 min Breakeven Point...

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Decision Case 1 (30 min.) Breakeven Point:
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Annual fixed costs: To earn target operating income:
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Number of meals per night:
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Financial Statement Case (35 min.) Req. 1 Req. 2 Amazon.com is a retailer that purchases the merchandise it sells. Therefore, cost of sales is a variable cost that changes with sales. In contrast, technology and content is a fixed cost that does not vary with sales. In his letter to shareholders, CEO Jeff Bezos says his objective is to offer both world-leading customer experience and the lowest possible prices. Traditional stores trade off these two goals because most of the cost of customer service is variable—as the number of customers and sales increase, so does the cost of servicing these customers. However, through e-commerce and advanced information systems, Amazon.com has transformed most of these costs into fixed costs. Thus, as the company continues to grow, the fixed customer service costs allow the company to continue to offer world-leading customer service while lowering prices (because spreading the fixed costs over higher sales reduces the cost per unit).
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Amazon.com’s contribution margins (all dollar amounts in thousands): 2002 Sales revenue $3,932,936 Variable costs: Cost of sales $2,940,318 Variable operating costs* 92,849 3,033,167 Contribution margin $899,769 2001 Sales revenue $3,122,433 Variable costs: Cost of sales $2,323,875 Variable operating costs* 121,082 2,444,957 Contribution margin $677,476 2000 Sales revenue $2,761,983 Variable costs: Cost of sales $2,106,206 Variable operating costs* 151,966 2,258,172 Contribution margin $503,811
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This note was uploaded on 03/27/2011 for the course ACC 206 taught by Professor Any during the Fall '11 term at Ashford University.

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ewps_Ch21_Case1 - Decision Case 1(30 min Breakeven Point...

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