Amazon Inc. and its Method of Calculating Cost

Managerial Accounting
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Date Managerial Accounting                                                Amazon Company and history Amazon, Inc is an online retailer operating globally and based in Seattle, Washington. The company deals with a wide array of merchandise from electronics, apparel, books, sports gear, games, software, home tools, baby toys, automotive products and other merchandise goods (Marketline, 2018). Amazon also provides services like advertising, order fulfillment, web services, cloud services, publishing and even credit cards. On the manufacturing side, the company produces and sells various electronic devices like e-readers, Fire TVs, Fire tablets and Echo.  The company sells its products through the portal , and international websites operating in the various regions (Marketline, 2018).  In the early phase of the company’s growth, Amazon and its subsidiaries were the biggest internet retailer of music, books, DVD, and video. Jeff Bezos, the current CEO started and incorporated Amazon in 1994 in Washington State and reincorporated it in 1996 in Delaware. In May 1997 the company undertook an initial public offering (IPO) and listed in NASDAQ as “AMZN” (Marketline, 2018). When Amazon was created, the company started to sell books to customers and delivered them all over the U.S.  While there were other previous booksellers offering services, Bezos also integrated elements of technology in the company to achieve through the support for online services. The company also made video and music sales in the late 90’s, and started expanding internationally. Nonetheless, the company made losses in the initial years of operation.  In 2007, Amazon introduced the Kindle e-readers targeting the e-book market and followed this with the Kindle Fire in 2011, a tablet computer at a time when e-books were growing in popularity (Marketline, 2018). The Amazon Web Services (AWS) was started in 2012 to expand beyond the retailing domain, and AWS is now Amazon’s cloud computing segment. Cost calculation method Managerial and cost accounting is a specialty in accounting where there is a re-recording summary, analysis, and interpretations of details on costs. The costing methods focus on products, and the costs are incurred for materials, labor, and other manufacturing costs. Ensuring the control and analysis of the costs of the production process is necessary to obtain the cost per unit and total costs. In the service sector, cost calculation is more complicated since there may be uncertainty on the quality and productivity of services. Nonetheless, even the service sector has adopted the product costing methods.  Amazon mostly uses the job-order costing approach, but also integrates activity-based costing in the calculation of costs. One of the features of e-commerce is an overreliance on technology, and there is a need to improve the supply chain. Amazon has sought to leverage electronic commerce to improve logistics, where orders are made based on a scheduled basis and information shared electronically to ensure there is a replenishment and customers get what they want. Electronic commerce is important in logistics to improve the processes so that the merchandise is labeled, packaged and distributed. Managerial accounting also measures and analyzes the total cost of production, including the job orders, which are recombined and calculated to determine the financial costs. Since the costs are disbursements to acquire goods and services, and they are classified based on what they affect.    The direct cost of labor and material vary with the volume of production in manufacturing, and as the volume increase, so too does do the direct costs, but the fixed costs remain the same regardless of the level of activity (Machuga & Smith, 2013).  While the job order costing is most associated with calculating the costs for product inventory, it is applicable for job order costing in the service industry.  There is a need to keep track of the costs of certain jobs performed and evaluate the profitability of the specific customers served.  While the manufacture of the Kindle products depends on various processes, the process accounting approach would be inadequate as Amazon has outsourced the manufacture of various components to China, South Korea, and Taiwan. There has been a decline in American manufacturing as it is cheaper to outsource the manufacturing process to the low cost East Asian region.  Typically, in job order costing, costs are assigned to jobs for the direct labor and material, as well as the variable and fixed manufacturing overhead.  Amazon may experience net shipping costs because of the split-shipments, upgrades and additional shipments to facilitate timely delivery (Amazon, 2017). The costing approach is absorption or full costing approach. The job order costing approach is appropriate when the manufactured products differ regarding specifications and customer requirements. The quoted price depends on the estimated cost, and even in the service sector the costs incurred for each job are assigned to each of the items and services. In the job order costing system, the different elements of the cost aggregated depending on the job orders assigned.  Amazon’s customers can choose goods from different vendors on the company’s website as Amazon online platforms are linked to third-party sellers. Job order costing is more appropriate than a process costing since there is a large variety of goods to choose from and not a large production as is the case with process costing. There are numerous categories of goods, and as the company operates in different regions, Amazon can handle large customer requests and has a high volume of goods. One of Amazon’s streng...