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A flexible budget for next year at Amazon.com

Create a flexible budget for Amazon based on the 2012 actual result, being realistic based on history and economic trends. Use the absorption costing approach.

Show three different growth rates. Explain your estimates and assumptions. Specifically, explain:

What is the growth rate in sales for the past three years?
Are revenues and expenses growing at the same rate? What was the experience in the past few years?
What is the current growth rate in the economy?
How are the competitors doing?
Current interest rates and tax burdens.

Discuss the implications of the flexible budget.
How does the flexible budget differ from a static budget?
Budgets are used for planning and control. Discuss how you can use the information derived for these two purposes?
Comment on using this information for performance evaluations.

Solution Preview

What is the growth rate in sales for the past three years?

The growth rate in sales is 22% but that is split between the lower growth for media of 12% and the extreme growth of new product lines of 35% to 59%. See separate tab in Excel showing three year growth rates.

Are revenues and expenses growing at the same rate? What was the experience in the past few years?

No, expenses are growing faster than sales.

What is the current growth rate in the economy?

The economy is growing very slowly, close to 2%.

How are the competitiors doing?

Competitors are split with some ...

Solution Summary

Your tutorial is 359 words plus cut and pasted excerpts from Amazon's 2012 annual report and a flexible budget in Excel that has assumptions to guide you. Click in cells to see computations.

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