Apple Inc.
Budgeting process, Management Information accounting System and
Capital Decision Report
Marcela Cmarkova July 2012
Table of contents
Company description 3
Apple Inc. Budgeting process 3
Management Accounting Information System 3
Costing process 4
Capital decision 4
Capital acquisition and structure 5
Conclusion 5
Reference 6
Appendix 7
Company Description
Apple Inc. is the most known and reputed company when it comes gadgets. Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players and sells a variety of related software, services, peripherals, and networking solutions. The company sells its products worldwide via online and retail stores, direct sales, and third-party wholesalers and resellers. In addition, the company sells a variety of third-party compatible products, including application software, printers, storage devices, etc. The company sells its products to consumers, small and mid-sized business, education, enterprise, government and creative customers (Apple, 2012)
Apple Inc. also produces a majority of its products outside the U.S. Political conflicts between the U.S. and any of these states may have dramatic outcomes for Apple Inc. The global economic depression might also have immense impact on Apple Inc. In 2010, the net sales were $65,225 whereas in 2011 it was $108,249. It shows that how much market share as well as demand of the company has increased. This high rate of sale is giving a tough competition to the existing player of the industry such as Dell, HP, etc. (Apple, 2012)
Apple Inc.s Budgeting Process
The budgeting process of Apple Inc. is quite stable and reliable. Their budgeting process is as per according to their resources, production, and expenditures. Their budgeting process implements a business on paper before any resources are committed to production.
In budgeting process accountants works to maintain and allocate funds as well as manage the book keeping. The shareholders value can be maximized by covering more and more market share and market share of a company can be increased by creating and increasing more demand among consumers. By performing the corporate responsibility and the social responsibility the value of shareholders can be maximized. If the company has ability they will be able to increase their stock value which will ultimately increase its shareholders value. Of course careful control budgeting is important for any company but for maximizing shareholders value it is not the only way. Apple Inc. knows that maximizing shareholders value is a long term goal which cannot be done by framing better budget and ad-hoc approach. It can link by setting a target before managers and the completion of target increases the demand, which result into increase in the value of stock price as well as value of shareholders. (Apple, 2012)
Management Accounting Information system
Management accounting information system has become an essential part of any organization. In todays information technology era every business is dependent on management accounting information system as it helps in providing timely information for the internal management, controlling and operations.
Apple Inc. uses Management accounting information system in an efficient way and on certain processes to control costs and to make some sound decisions. It is their basic need and requirement, especially for operation management, retail management, providing services, managing records of various products production, sales and income management accounting information system. As already mentioned, Apple Inc. sells its products worldwide via divers channels. To control and manage these channels, the company is dependent on management information system
Management information system emphasizes on Apple Inc.s internal control and providing accurate and reliable accounting data for the company. It provides information related to accounting and maintain the record. Through management information system Apple Inc. is able to summarized reports in both computerized and manual ways. Apple Inc. applies management information system for their production processes also (for controls over manufacturing inputs and outputs) required by Rule 404 of the Sarbanes-Oxley Act of 2002. (Wikinvest, 2010)
Costing process
Activity based costing (ABC) is an accounting means that is utilized to conclude the actual cost involved in manufacturing a product or offering a service (Stratton et al, 2009). It is primarily utilized to allocate indirect costs and support resources to activities. ABC focuses on identifying activities required to manufacture a product given that this activities require resources thus cost can be calculated (Simpson, Williams, 1996).Apple Inc. uses ABC analysis for their costing process.ABC analysis has helped the Apple Inc. in improving their business processes and costing methods so compete with the low-priced competition. Today, most of the giant firms are purchasing and installing the price optimization software, which is helping them in optimizing the cost. It helps them in providing an insight to the least visible and fastest growing element of cost and that is overhead. It determines the total life cycle cost and performance which improves profitability for company. One of the most important decisions for Apple Inc., is to link the corporate strategy to operational strategy, which helps the organization in attaining the desired profit. It improves the process of budgeting by identifying the cost/performance analysis at different service levels. It also eliminates the waste material. Through ABC analysis Apple Inc. identified the percentage of clients who offer maximum percentage of profit. The applicability of ABC to Apple Inc. is very important. The company applies ABC for following things:
optimizing the cost and getting competitive advantage in pricing.
determining the price of the product in each activity and to implement fair pricing.
understanding the customer profitability and total life cycle cost of their products.
deciding between making and purchasing, focusing on the overheads.
determining the outsourcing price and process cost
Capital decisions
As every company, Apple Inc. evaluates the costs and benefits decision taken by their management. The first step they use is the evaluation of their product, cost associated with it, consumers preference and benefits from it.
For decision making framework Apple Inc analysis and measure various kinds of cost that affect their product such as social, political, environmental etc. They identify the cost for all these factors and their cost related to new projects, products, facilities etc. they accumulate the social, political, environmental costs. For capital decision they use Costing methods related to past operations (both current and future). A project core team of the company consists of representatives from each stakeholder and then only the capital decision is being taken. These stakeholders are from various departments such as administrative department, marketing department, finance, supply chain, user-groups, quality control etc. They first identify the project need, select alternatives and then work on them.
Apple Inc. measures their employed performance by using qualitative measure. Quantitative measurementis not suitable for every tasks, product and services. That is why they focus more on qualitative measure. Qualitative measurement provides them a subjective quality factors while measuring employed performance. They use to evaluate employees performance on half yearly or sometime annual basis.
Apples Inc. total expense accumulated with the increase in its earning but when compared to companys earning, the rate of increase in its total operating expenditure is very less – i.e. 37.38%. The most essential concern from investment perspective is the EPS of the company, which has grown with a very high rate – i.e. 82.02%. Regardless of the fact that U.S. dollar has depreciated, Apple Inc. is not as threatened, given that the company has invested in foreign currency, to minimize the economic damage caused by inflation. (Apple, 2011)
Capital acquisition and structure
Capital acquisition is a concept used by the company for their growth. It the capital used to acquire by the company when business needs some growth. Under this process companies purchase some equipment, software, assets, inventory or the business but the ultimate goal of these acquisitions are maximizing overall profits of a business.
ITunes is a sound source of revenue for Apple Inc., since it also sells its own tool, the iPod; and is accessible on Microsoft Windows as well. Its acquisition with Microsoft Windows and Mac OS helped them in achieving maximum market share. Its acquisition and mergers with Intel Computers in 2006 help them in operating their business globally. Apple Inc. has effective R&D department which also take care of their effective acquisitions.
Acquiring various companies helps them in so many ways to like, in profit maximization; understand the relationship between overhead expenses and the volume produced, understanding product cost behaviour etc. Management takes initiatives to implement ABC/M in Apple Inc. ABC approach is applicable throughout company financing, costing and accounting.
Although, the net cash value of Dell and Microsoft has accumulated from 2010 to 2011 but their cash from operating activities has increased with a very low rate when compared to Apple. Apple Inc. had the Net income of $25,922 mil., whereas Dell and Microsoft had $2,635 mil. and $23,150 mil. in the year 2011 (Daily Finance, 2011).
Due to this, Dell and Microsoft any have some problem in meeting with their short term obligations but Apple Inc. will never face this. It is possible because of successful acquisition.
Conclusion.
Apple Inc. operates its business on a global scale. This became possible because of the proper management processes and its practice internationally. Its proof can be found by checking the current growth and financial statement of the company as well as its future potential growth plan. Proper utilization of management accounting activities also improves its performance with its competitors and within the industry.
When examining all aspect of financial statement we can conclude that Apple Inc. has very solid and flourishing financial position. The noticeable shift in companys earning, sales, EPS etc., is suggesting that the company is functioning very efficiently. While studying the income statement we can concluded, that the Net sales have accumulated with a very high rate, which demonstrates that the company is not only maximizing its profit but they are maximizing their health. Lower change in liability when compared to the assets value of the company, demonstrates high capitalization. Although, there is a decrease in the total cash value of the company but a very high increase in cash operating activity secure companys daily investment. The price range in last 52 weeks, P/E ratio, EPS, ROE (24%) of the company in 2011 satisfies the investment criteria. Thus, we can conclude that Apple Inc. is doing well and utilizing their budgeting and coating process efficiently. (Apple, 2011)
Reference:
Apple Inc. (2011) Apple Reports Fourth Quarter Results, Available [online] http://www.apple.com/pr/library/2011/10/18Apple-Reports-Fourth-Quarter-Results.html (Accessed: July 11, 2012)
Apple Inc. (2012) Apple Press Info, Available [online] http://www.apple.com/pr/library/2011/10/18Apple-Reports-Fourth-Quarter-Results.html (Accessed: July 10, 2012)
Apple Inc. (2012) Financial history, Available [online] http://investor.apple.com/financials.cfm (Accessed: July 12, 2012)
Apple Inc. (2012) Apples 2011 Proxy Statement Now Online, Available [online] http://www.apple.com/pr/library/2011/01/07Apples-2011-Proxy-Statement-Now-Online.html (Accessed: July 10, 2012)
Daily Finance (2011) Why the street should love Apples Earnings, Available [online] http://www.dailyfinance.com/2011/10/21/why-the-street-should-love-apples-earnings/ (Accessed: July 12, 2012)
Simpson, W., Williams, M. (1996) Activity-Based: Costing, Management and Budgeting,The Journal of Government Financial Management, Vol. 45, Issue 1, pp. 26-28.
Stratton, W., Desroches, D., Lawson, R., Hatch, T. (2009). Activity-Based Costing: Is It Still Relevant?,Management Accounting Quarterly, Vol. 10, Issue 3, pp. 31-40, Available [online] http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/pdfviewer/pdfviewer?sid=5c832d91-96a5-4a99-92d3-9ff52f0d4686%40sessionmgr4&vid=3&hid=103 (Accessed: July 12, 2012)
Wikinvest (2010) Section 906 of the Sarbanes-Oxley Act of 2002, Available [online] http://www.wikinvest.com/stock/Apple_(AAPL)/Sarbanes-oxley_Act_2002 (Accessed: July 11, 2012)