How will you apply incremental analysis to answer the question: Is Amazon costing the U

Answer....

The question concerning the amount of costs provided by the Amazon to the U.S. Postal Servicemainly relates to the incremental revenue and incremental cost along with the common or fixed costs.This issue has been brought up by Presented Trump who was claiming that the U.S. Postal Service havebeen losing money from its contract with Amazon. However, the U.S. Postal Service states that itsincremental revenue from their contract with Amazon helps them to cover the incremental costs andsome of its “institutional” or “common” fixed costs. Moreover, Amazon has been stating that they aredoing most parts of the delivery process through the arrangement of the zip codes and carrier route.With this, although Amazon benefits from the low cost contract with U.S. Postal Service.

For starters, other than Amazon and the Postal Service, almost nobody — including Trump — knows for sure what the revenue from the contract is. Analysts have estimated that Amazon uses the Postal Service for 40 percent of its shipping and that the per-package cost works out to roughly $2, or about half of the standard rate charged by other big shippers. One reason the Postal Service is willing to give Amazon such a big discount is the huge volume of deliveries that the contract guarantees — a key factor in business with high fixed costs. Another is that Amazon performs a fair amount of the shipping work itself, arranging the packages by Zip code and carrier route and dropping them off on pallets at one of 20 Postal Service distribution centers across the country.

Of course, we still haven’t exactly answered the larger accounting question, whether the Postal Service is making or losing money on the Amazon contract. Using short-term incremental accounting — incremental revenue minus incremental costs — the Amazon contract certainly looks profitable.