Activity-Based Costing (ABC) in Service Industries - Case Study Example

r that the Amazon.com Company is a verified technology leader; it has developed electronic commerce innovations such as personalization of shopping services and easy-to-use search and browse features (Anderson & Young, 2001). Shopping at Amazon.com is fast and safe, incorporating a simple ordering system, secure credit card transactions, and e-mail communication with customers and direct shipping internationally. The Internet is an increasingly significant global medium for online commerce. The Company’s headquarters are based in the Seattle, Washington.

The Amazon.com firm successfully accomplished its initial civic offering in the mid-month of the year 1997 and its common stock is listed on the Nasdaq National Market under the symbol AMZN. In many ways, Amazon.com is perhaps the company that is most closely tied with the E-Commerce phenomenon. The company has grown from a bookseller to a fundamental Wal-Mart of the website selling products as diverse such as Music compact discs, game applications, software and apparatus and hardware. The company has also grown at a steady rate with revenues rising from about one hundred million dollars in 1997 to three billion dollars in 2001 (Anderson & Young, 2001).

However, the rise in revenue has led to a corresponding increase in operating losses making the company to run a great deficit. The company did make its first quarterly profit of five million dollars in the fourth quarter of 2001. Unfortunately, this was made to decline by vital cumulative losses. Great economists first defined the concept of Activity Based Activity in the late 19th century in that period. Originally, the ABC was focusing on the manufacturing industry where the technical upgrading and output upgrading had reduced the quantity of express labor and the material costs, though there was an increase in the percentage of indirect or overhead cost.

In contrast to the traditional cost accounting system, the activity based cost systems originally