Segment Contribution Margin Analysis

Amazon.com, Inc. $($AMZN$)$ organizes its operations into three segments: North America, International, and Amazon Web Services $($AWS$).$ The North America and International segments primarily report amounts earned from online consumer retail sales. The AWS segment offers a broad set of technology services, including computing, storage, database, analytics, and other cloud$-$based services. For a recent year, Amazon reported the following segment results $($in millions$)$:

Line Item Description Segment

North

America Segment

International Segment

AWS Total

Sales $$236,282$ $$104,412$ $$45,370$ $$386,064$

Operating expenses $(227,631)(103,695)(31,839)(363,165)$

Operating income $$8,651$ $$717$ $$13,531$ $$22,899$

Assume the following percentages of total operating expenses for each segment are variable:

Segment Percentage of Variable

Operating Expenses

North American $85\%$

International $80\%$

AWS $75\%$

Question Content Area

a$.$ Prepare a variable costing income statement for Amazon.com by segment. Round all amounts to the nearest million.

Amazon.com, Inc.

Variable Costing Income Statement

$($in millions$)$

Line Item Description North

America

International

AWS

Total

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

$-$ Select $--$ Select $--$ Select $--$ Select $-$

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

$-$ Select $--$ Select $--$ Select $--$ Select $-$

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

Question Content Area

b$.$ Compute the contribution margin ratio for each segment. Round ratios to the nearest tenth of a percent.

Segment Contribution

Margin Ratio

North America fill in the blank $1$ of $3\%$

International fill in the blank $2$ of $3\%$

AWS fill in the blank $3$ of $3\%$

c$.$ Based on your answers to $($a$)$ and $($b$),$ interpret the segment performance.

The North America segment$$s contribution margin ratio is slightly fill in the blank $1$ of $6$

than International$$s contribution margin ratio. In contrast, AWS has a contribution margin ratio is fill in the blank $2$ of $6$

than twice that of the North America and International segments. These differences reflect the underlying operations of each segment. The North America and International segments are based primarily upon consumer retail sales, which is fill in the blank $3$ of $6$

competitive with fill in the blank $4$ of $6$

operating margins. In contrast, AWS focuses on a broad set of technology services, which allows for fill in the blank $5$ of $6$

operating margins. In addition, Amazon.com was one of the first companies to focus on developing cloud$-$based technology services. However, Amazon.com is facing fill in the blank $6$ of $6$

competition in its AWS cloud$-$based services from companies such as Microsoft $($MSFT$).$