For this week's first Application Assignment, you will continue your analysis of Netflix, Inc. by examining the factors that drive cost, price, and output volume. Use the information provided in Netflix's 2006 annual report to answer the following questions:
- What drives price and output volume for Netflix?
- What factors drive cost, unit cost, and demand for inputs to Netflix's service outputs?
- Construct (linear) models of relationships between cost drivers and costs. Under what conditions are such models inappropriate?
- In general, who in an organization is responsible for different components of a cost variance?
Be sure to refer to the information in Netflix's 2006 annual report when answering the questions above. In addition, the data in last week's handout and the readings from the text may also be useful.