Netflix, Inc. and Amazon.com, Inc. engage in cost estimation methods to help them in the planning of the various the companies incur in their operations. The various cost estimation methods that are applied in cost estimation methods are the high low method, regression analysis method and the account analysis technique (Cook et al., 2017). The high low method involves the companies with the highest operational activities and the lowest operational activities and contrasting the total costs for each operational level of the company. The regression analysis method of cots estimation that involves the predicts the costs by determining the correlation between the dependent variable and the independent variables.
The best method which is applied by organizations Netflix, Inc., and Amazon.com, Inc is the account analysis method due to its simplicity and understanding. In developing the account, analysis technique is a unique cost accounting method that is used by various companies in the estimation of costs that are associated with the company producing a good or a service. The organizations tend to categorize the costs into three which are the variable costs, mixed costs, and fixed costs (Cook et al., 2017). Fixed costs are the costs which remain stagnant when a company produces the goods and services associated with the company. Variable costs are the costs that change with the output level of the company. Mixed costs are the cots that the business incurs. Mixed costs are the combination of both variable and fixed costs. Variable costs in organizations tend to increase as the products produced by the organization are created as materials. Fixed cost tends to remain stagnant as the manufacturing process or production process occurs. Mixed costs are a combination of variable and fixed costs that are inseparable from the each other during the manufacturing process. The accounting cost analysis method tends to use the linear algebra method to represent the different cost incurred by the organization.
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The Account classification is the best method applied by Netflix, Inc., and Amazon.com, Inc. in the estimation of costs by these companies. Furthermore, these organizations can identify the historical patterns which are not going concern (Horngren, 2009). Netflix and Amazon companies tend to use Account classification to forecast the profit levels of their organizations by estimating their costs using the past costs which they have incurred. The organizations can estimate the profit margins that their organizations may acquire after they have incurred all the operational costs.
Netflix, Inc. and Amazon.com, Inc. tend to use the accounts classification method in estimation of the costs incurred by the organization (Cook et al., 2017). The accounts classification method gives a clear outlook of the incurred costs in the previous years which the company can use as appoint of reference in estimating the future cost that the organization will incur in the future. The accounts classification method can classify variable costs, fixed costs and mixed costs the organizations incurred separately.
Accounts classification methods can identify the extra or unnecessary costs that have been incurred by the organization. The accounts classification method can identify the various unnecessary costs that have been incurred in the previous years which could be avoided (Horngren, 2009). Through the classification of these costs in the different accounts can be identified and the management is taking an affirmative action to deal with the costs (Glendening, 2017). Netflix, Inc. and Amazon.com, Inc. organizations may apply the lean method of production to help in cutting down the unnecessary cost that has been incurred by them in the previous years by these organizations.
Accounts classification method is the best method of cost estimation by the Netflix, Inc., and Amazon.com, Inc. as it can identify the direct and indirect cost incurred (Glendening, 2017). The organizations use this information in the estimation of the direct and indirect costs for the purpose budget control and planning of the available resources set aside by these organizations to cover the direct and indirect cost incurred.
From the above illustrations, we get to understand the significant role that Accounts classification method plays in cost estimation in Netflix, Inc., and Amazon.com, Inc organizations.
References
Cook, C. N., Pullin, A. S., Sutherland, W. J., Stewart, G. B., & Carrasco, L. R. (2017). Considering cost alongside the effectiveness of management in evidence-based conservation: A systematic reporting protocol. Biological Conservation , 209 , 508-516.
Glendening, M. (2017). Critical Accounting Estimate Disclosures and the Predictive Value of Earnings. Accounting Horizons, 31(4), 1-12.
Horngren, C. T. (2009). Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
