Verified Document

Accounting Netflix Essay

Accounting The trend in Netflix's contribution margin ratio over the past three years is as follows. The costs are the COGS plus 30% of other expenses. The remaining 70% of expenses are assumed to be fixed.

Netflix

Revenue

Costs

Contribution

Contribution Margin

The contribution margin for Netflix is therefore lower than it was a couple of years ago. The long-term trend is tough to determine, but it seems that Netflix saw its contribution margin take a hit in 2012, only to begin the process of building it back in 2013. Or alternately, this new level is basically a "new normal" level for the company, with the higher level from 2011 unlikely to be reached again for the foreseeable future. Either is possible without knowing the reason why the contribution margin declined so much in 2012.

The breakeven point for Netflix given this is as follows:

Breakeven

Variable Costs

Fixed Costs

Breakeven Revenue

What this means is that the company's breakeven revenue point has increased over the past...

The fixed costs continue to increase and the result of that is that Netflix needs to earn more money each year in order to break even.
Margin of Safety

Revenue

Breakeven Revenue

MoS

For Netflix the margin of safety has fluctuated. The company definitely had a rough year in 2012, when the margin of safety declined, but it has built is margin of safety back up a bit for 2013.

If the fixed expenses were 60% of operating expenses, the results do not change much. The contribution margin changes, of course, as it gets lower, but the breakeven revenue and the margin of safety do not change. When fixed expenses are 80% instead of 70%, the contribution margin gets higher but again there are no changes to the breakeven revenue or margin of safety because the change to the contribution margin is offset by a corresponding adjustment to the fixed costs.

If the total dollar amount of fixed costs remains the same as under the 70% scenario, the effect of a 10% reduction in revenue on operating revenue would be that operating revenue would decline.…

Sources used in this document:
References

Arrington, W. (n.d.). Target Costing. Retrieved from www.freequality.org/documents/Training/Target%20Costing.pptx

Feil, P., Yook, K., and Kim, I (2004, Spring). Japanese Target Costing: A Historical Perspective. International Journal of Strategic Cost Management. Retrieved from http://economiceducation.us/dotAsset/785833.pdf

MSN Moneycentral. (2014). Netflix. MSN Moneycentral. Retrieved May 31, 2014 from http://investing.money.msn.com/investments/stock-income-statement/?symbol=NFLX

Tsorakidis, N. (2009). Break-Even Analysis. Retrieved from http://bookboon.com/en/business/finance/break-even-analysis-1
Walther, l. (2012). Chapter Eighteen. Cost-Volume-Profit and Business Scalability. Retrieved (including video lecture) from http://www.principlesofaccounting.com/
WBS Group. The Supply Chain Mechanics. (n.d.).Target Costing. http://www.wbsgroup.com/downloads/Website%20WBS%20Target%20Costing.pdf
n.a. (2010, September 20). Breakeven Analysis - Starting a Coffee Shop - [Video file] Retrieved February 27, 2013, from http://www.youtube.com/watch?v=i7uhmGVsbUg
Martin, J.R. (n.d.) Management Accounting: Concepts, Techniques, and Controversial Issues - Chapter 9: The Master Budget and Financial Plan. Retrieved from http://maaw.info/Chapter9.htm
Cite this Document:
Copy Bibliography Citation

Related Documents

Costs at Netflix
Words: 811 Length: 2 Document Type: Term Paper

Accounting Netflix Costs Netflix is a well-known media company. The firm makes media content available to customers based on a monthly subscription fee. The main area of the business is the internet television network, with the company streaming media content such as television programs and films, to more than 44 million subscribers across more than 40 counties (Netflix, 2013). In addition the firm also has a DVD rental segment, sending out DVD's

Netflix Annual Report
Words: 1141 Length: 4 Document Type: Research Paper

Netflix Annual Report The annual report filed as a form 10-K offers investors a detailed look at a company's operating and financial results and, as a result, is an invaluable tool for anyone interested in a company's financial picture. As a publicly-traded company, Netflix is required to submit a form 10-K to the U.S. Securities and Exchange Commission (SEC) and send it to shareholders. The SEC requires the report to conform

Netflix Company Analysis
Words: 2893 Length: 10 Document Type: Essay

Organizational Context Netflix is an entertainment company based in the United States that specializes on online on-demand streaming video, in addition to a DVD-by-mail service in America. The organization was founded in Scotts Valley in 1997 and two years later began its prevailing consumer subscription model. In the present day, Netflix’s consumer base comprises of more than 117 million subscribers in 190 nations across the world. Netflix are a forerunner in

Implementing Activity-Based Costing at Netflix
Words: 580 Length: 2 Document Type: Essay

Accounting ABC at Netflix To; CEO Netflix From; XXXX Re; Move to Activity-Based Costing (ABC) Activity-based costing has the potential to increase transparency in accounts, compared to absorption costing. Activity-based costing breaks down of the different tasks into the different elements, determining the costs of each activity to create a product or service. This breakdown of costs can them be used to allocate costs for the production process and give an accurate picture of the

How Accountants Deal with a Poison Pill Offer
Words: 5768 Length: 19 Document Type: Essay

Introduction Financial and legal experts concur that one of the strongest anti- takeover defense approaches is a shareholder rights strategy (or, in more informal terms, a poison pill)[footnoteRef:1],[footnoteRef:2]. Though the particulars differ based on strategic implementations, the elementary defense tool offers extant shareholders (with the exception of hostile bidders) the right to purchase stocks authorizing them to obtain new shares at considerably low rates, in case a hostile bidder gets his

Financial Stakeholders in a Business Main Financial
Words: 2155 Length: 6 Document Type: Essay

Financial Stakeholders in a Business Main financial stakeholders, their power and influence in a business Stakeholders refer to people affected or have an interest in the objectives and operations of the business. The business has a variety of stakeholder segments, which have been broadly categorized as follows: The classification of stakeholders varies in terms of interests to the activities of the business and their power to influence key decisions. The fact is

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now