Managerial Accounting in Apple Inc.

: The Rationale behind its Success

Vrushali Soni Northwest University

 Established on January 3, 1977.

Headquartered in Cupertino California Apple Inc. (Apple) is currently one of the leading innovator and mobile device provider. It develops around 57 products, services, peripherals, networking solutions, third party digital content and application.

Niche market

More than 320 Retail stores

450 stores expected by Dec 2012.

APPLE 2011
Revenues : $108.25 billion growth of 65.96% in one year.
60,400 employees

MCap: $625.35 billion

Net income: $25.95 billion Growth: 84.99% in one year

 The international sales accounted for 62% of the quarters revenues. All the products and services except iPod have increased in sales in this year. iPod sales decreased by 10% from the precious year.

Cost Management,

Transfer pricing

Responsibility accounting.

1. COST MANAGEMENT
Operating Expense

SG&A

R&D

8% 7%

3% 2%

Apple: Pioneer in Innovation

It ranks 18th with the expense of $2.429 billion in the list of highest R&D expense reporting tech companies. It ranks behind other popular technology giants and its closest competitors. Microsoft ($9.4 billion), Intel ($8.4 billion), IBM ($6.3 billion), Google ($5.2 billion), and HP ($3.2 billion)

2. Transfer Pricing as Tax Shields

In 2011,
Tax rate was 24.2% In 2010,

Tax rate was 24.4%

In 2009,

Federal Tax rate: 35%

Tax rate was 31.8%

 In 2011, Apple paid $8.3 billion as total tax.

Assuming 50% Apples operations in U.S, the

tax charged will be $2.4 billion more.

If 70% in U.S then Apple will have to pay $4.8

billion more as federal tax bill.

It declared to have made 24 cents in pre-tax

profits in U.S whereas 36 cents from abroad

on every dollar of revenues

3. Responsibility Accounting: Apples DNA

Accountability is strictly enforced, Decisions are swift and Communication is clear between top and bottom level of employees. For instance, Hardware design department, the entry-level employees used to get feedback on their work by top level executives.

Weekly meetings between CEO and executive management team.

Every Monday: meeting to discuss results and strategies of every ongoing project.

Every Wednesday: marketing and communication group meetings.

Responsibility Accounting in Employees

DRI- Directly Responsible Individual

Tag assigned to the person responsible for the concerned process

No incentive to shirk or free-rider problems & performance evaluation is transparent

Accountability of Steve Jobs

He made a panel of a college dean and few professors who currently work on a project called Apple University. Drafting case studies on the thought processes and decision-making criteria considered by Steve Jobs and other higher authorities while carrying out any critical function or decision. The rationale behind this project is to give an overview of Apples working ethics to the new generation executives.

 Apple only focuses on very few products at

one time and therefore can control its R&D

expense.
The employee volume is also less compared to other tech giants therefore can control SG&A expense.

 The offshoring decision of Apple is yielding high

benefits by providing tax shields over its cash flows however, its supplier relations with Foxconn, one of the major manufacturing suppliers are worsening gradually.

Bringing back the manufacturing line in-house,

and exporting the products from U.S. to foreign

countries might serve Apple with high operating

expense and low profit margins.

 The RDI concept is great for the projects including small group of people, but as the company expands, it will have common corporate

problems like goal incongruence, free rider

problem, moral hazard, horizon problem,

incentives to shirk and so on.

Apple will have to take precautionary step before making high volume expansion, which it is planning to do soon.

Discussion & Questions