Cost Allocation and Revenue Recognition at Netflix

• Values:
  • Total Costs: $120,000,000
  • Revenue Earned: $200,000,000
  • Number of Subscribers: 50,000,000
  • Cost Allocation Bases: Subscriber Months, Revenue
• Requirements:

1. Allocate costs using subscriber months as the allocation base for Netflix.
2. Allocate costs using revenue as the allocation base for Netflix.
3. Discuss the impact of cost allocation methods on financial statements and profitability.
4. Analyze how revenue recognition principles apply to Netflix’s subscription-based business model.