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.

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): Assume the following percentages of total operating expenses for each segment are variable: a. Prepare a variable costing income statement for Amazon.com by segment. Round all amounts to the nearest million. b. Compute the contribution margin ratio for each b. Compute the contribution margin ratio for each segment. Round ratios to the nearest tenth of a percent. c. Based on your answers to (a) and (b), interpret the segment performance. The North America segment's contribution margin ratio is slightly than International's contribution margin ratio. In contrast, AWS has a contribution margin ratio is 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 competitive with operating margins. In contrast, AWS focuses on a broad set of technology services, which allows for 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 competition in its AWS cloud-based services from companies such as Microsoft (MSFT)