Question: The following passages are taken from the notes to the

The following passages are taken from the notes to the financial statements in's 2003 annual report.
Cost of Sales
Cost of sales consists of the purchase price of consumer products sold by us, inbound and outbound shipping charges to us, packaging supplies, and certain costs associated with our service revenues. In instances where we incur fulfi llment costs to ship products on behalf of third-party sellers or provide customer service on their behalf, such costs are classified as "Cost of sales" rather than "Fulfillment" on the consolidated statements of operations.
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers, including costs attributable to receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders for shipment; credit card fees and bad debts costs, including costs associated with our guarantee for certain third-party transactions; and responding to inquiries from customers.
Fulfillment costs also include amounts paid to third-parties that assist us in fulfillment and customer service operations. Certain of our fulfillment-related costs that are incurred on behalf of other business, such as, Inc. and Target Corporation, are classified as cost of sales rather than fulfillment.

a. What type of cost is's cost of sales, a product or a period cost?
b. What type of cost is's fulfillment cost, a product or a period cost?
c. Notice that in both passages, references are made to costs related to packaging orders for shipment. How can costs related to packaging be classified as both a cost of sales and a fulfillment cost?
d. In an article titled "" in the July 24, 2000, issue of The Wall Street Journal, Andy Kessler commented on a statement in an 10-K statement that resembled the passages reprinted here. He argued that these fulfillment costs sound more like a cost of sales than a fulfillment cost. Do you agree with his argument? Why or whynot?

View Solution:

Sale on SolutionInn
  • CreatedFebruary 21, 2014
  • Files Included
Post your question