Cost calculation and allocation is the top priority of Amazon's financial accounting.

Only by accurately calculating the cost can the accurate profit be calculated, and the enterprise can also clarify the input and output of funds. Moreover, managers need cost data support when making decisions.

For example, check the cost and profit of the selected products, determine whether the selected products are profitable and worth spending money to replenish; clarify the advertising investment, analyze the conversion rate, and optimize the advertising strategy.

However, there are many types of costs for operating Amazon. In addition to local costs such as procurement, logistics, and head-to-head transportation, there are also various Amazon platform fees. For storage alone, there are monthly storage fees, over-age inventory surcharges, and disposal fees. etc., and the cost of each batch of goods is different. In addition, there are many operating sites and many product lines, and cost allocation and calculation are very difficult.

To calculate the cost accurately, it is very important to choose the right accounting method. For this, Leadstar ERP has prepared a manual of Amazon cost accounting, hoping to give you inspiration.

Amazon Cost Types

Operating Amazon requires many types of costs. If you ignore any of them, you will not be able to calculate the cost and profit, and the company cannot analyze the real data of capital input and output.

(1) Purchase cost

Product procurement costs are fixed expenses, generally including product purchase costs, related taxes, logistics costs incurred in procurement, loading and unloading costs, insurance costs, etc.

Calculation formula = order cost + material cost + inventory cost + out-of-stock cost, the data comes from the purchase report.

(2) First-way transportation cost

First-haul transportation refers to the process of transporting goods from domestic warehouses to overseas FBA warehouses. For Amazon sellers, the first-haul transportation costs often occupy the bulk of the cost.

Common headway transportation methods generally include the following two:

Air freight, regardless of the first weight, is charged according to the volume or weight of the goods; by sea, it is charged according to the volume or weight of the goods, and the higher of the two is charged.

(3) Storage fees

There are three different types of warehousing, including local warehouse, overseas warehouse, and FBA warehouse, and the cost of enterprise investment is also different.

For example, the local warehouse cost includes the wages of warehouse employees, which is not required for storage in other warehouses; there are many types of charges for FBA warehouses, including monthly storage fees, over-age inventory surcharges, and warehouse separation/combination fees.

(4) Promotion costs

Including on-site and off-site promotion on Amazon, there are SB and SP advertisements on the site, and the off-site can be promoted on Facebook, Twitter and other platforms, which can obtain a large amount of vertical traffic and bring considerable order volume to sellers.

(5) Amazon platform fees

The Amazon platform has been in cross-border e-commerce for many years, and there are many types of charges, including monthly store rent, sales commission, final shipping fee, FBA fee, return fee, gift wrapping fee, etc.

There are many hidden costs, which are easy to be overlooked, and are details that need to be paid special attention to in cost accounting.

(6) Local fees

Local expenses are fixed expenses for a business, including office rent, employee salaries, utility bills, and more.

Amazon Costing Methods

At present, Amazon's financial accounting methods commonly used are as follows:

(1) First in first out method

This principle was originally proposed in inventory management, that is, the first-in-stock goods are shipped first. In terms of cost pricing, the cost of goods shipped first is priced at the cost of the first batch of goods in storage.

Advantage:

①It has a high degree of matching with Amazon's delivery principles and is suitable for sellers who operate the Amazon platform

② It is suitable for categories with large price fluctuations and high requirements on the shelf life of goods, such as grain, oil and non-staple food

③The pricing method is flexible, and the cost of the goods can be settled at any time

④Support the calculation of the cost and profit of each batch of goods to meet the refined operation needs of the enterprise

Disadvantage:

The workload is extremely cumbersome, especially for companies with frequent inventory in and out

(2) Moving weighted average method

It means that every time you enter or leave the warehouse, the cost is recalculated according to the current inventory amount and outbound amount. Most Amazon sellers use the moving weighted average method to calculate the cost. The basic calculation formula is:

The cost of the latest single product = (the amount of the last balance of inventory + the amount of the current change in inventory) / (the amount of the last settled inventory + the amount of local change in inventory)

Advantage:

①Suitable for companies with small product price fluctuations, such as trading companies

②The calculated cost of a single product and the cost of delivery are more objective, which can help managers to understand the balance of inventory in a timely manner

Disadvantage:

Every time a new batch of goods is imported, the price of a single product must be recalculated, and the workload of financial accounting is very large.

(3) Weighted average method at the end of the month

It means that the total purchase cost of this month plus the inventory cost at the beginning of the month is divided by the total purchase quantity of this month plus the inventory quantity of the beginning of the month to calculate the cost of a single item in this month's inventory. Few Amazon sellers choose this method to calculate the cost. , and its basic formula is as follows:

This month's single product cost = (this month's purchase and storage amount + transfer storage amount + purchase return storage amount + other storage amount + this month's beginning amount) / (this month's purchase storage amount + transfer storage amount + other Inventory number + purchase return number + inventory number at the beginning of this month)

Advantage:

The calculation method is relatively simple, suitable for enterprises that do not require high cost accounting accuracy

Disadvantage:

①Nowadays, the price changes greatly, and the cost is calculated by this method, and the amount of inventory issued and balance cannot be checked from the book.

②It is not conducive to enterprises to control costs and optimize the supply chain

Amazon sellers can choose the appropriate method to calculate the cost of the enterprise according to their own needs. Generally speaking, because it is more suitable for business needs and can calculate the accurate cost, there are more sellers who choose FIFO and mobile weighting algorithms.

Amazon Costing Difficulties

Cost = local cost + Amazon cost, the daily flow of goods in and out of the warehouse is large, the procurement and logistics costs of each batch may be different, and cost statistics are difficult.

In addition, there are many types of fees on the Amazon platform, including many hidden fees, which are easy to be missed during calculation, which will directly lead to the calculation of wrong data.

In addition, Amazon's Summary and Transaction reports are not updated in a timely manner, which is difficult to meet the needs of most companies to calculate the cost and profit of this month at the end of the month.

Moreover, using FIFO and mobile weighting algorithms to calculate Amazon costs is very difficult, and it will take up a lot of time and energy of financial personnel. At this time, in order to meet business needs, the cost is allocated to the dimensions of stores, sites, persons in charge, products, etc., and the difficulty of financial accounting is doubled.

Leading Star ERP Solution

(1) Automatic cost statistics, faster and accurate

Leadstar ERP has opened up API interfaces with Amazon, warehouses (FBA warehouse/overseas warehouse/local warehouse), 50+ cross-border logistics providers and suppliers, and automatically extracts local and Amazon costs.

The data is updated the next day and displayed in the form of reports, which is faster and clearer than the data provided by Amazon. In addition, hidden costs are not omitted, and the data is more accurate, which is convenient for sellers to clearly understand the cost expenditure.

(2) A variety of accounting formulas to meet the needs of enterprises

Leadstar ERP supports cost accounting formulas such as mobile weighting, first-in-first-out, month-end weighting, etc. Amazon sellers can choose the appropriate method to automatically and intelligently calculate costs according to their business needs.

Make the heavy financial work simple and efficient.

(3) Multi-dimensional cost allocation to facilitate corporate decision-making

Leadstar ERP automatically generates inventory reports and profit reports. The cost data in it supports viewing the accurate cost allocation from dimensions such as MSKU, ASIN, Listing, store, site, and person in charge, which is convenient for the boss to make decisions with reference to the data.

For example, the cost data apportioned by the MSKU dimension can analyze the output of the investment in product selection, and the boss can use it as a reference for product selection decisions.

Find the correct accounting method suitable for the enterprise, and the cost data obtained will be more accurate.

Enterprises can use this to calculate profits and clarify the capital input-output ratio of the business, so as to make better and more refined decisions, and not yaw on the way to sea.