You are familiar with Amazon. In its second year of operation, its sales increased eightfold. Two years later, sales were $1.6 billion. While sales growth was impressive, Amazon's ability to lose money was equally astounding. One analyst nicknamed it Amazon.bomb, while another predicted it would perish and named it Amazon.toast. Why was he losing money? The company used every available dollar to reinvest in itself. He built huge warehouses and purchased increasingly complex (and expensive) computers and equipment to improve the distribution system. This desire to grow as fast as possible was captured in a tee. This buying frenzy was driving the company's fixed costs up at a rate that far exceeded its sales growth. At some point, the company expects its sales to increase by at least 28% in a given quarter, however, he predicted operating profit would decline by at least 2%, and perhaps by as much as 34%.

 How can this scenario be used in a CVP analysis situation and how can Amazon change its spending to increase profits along with increased sales?

Answer rating: 100% (QA)

The scenario of Amazons growth and lossmaking can be analyzed using a CostVolumeProfit CVP analysis ... View the full answer