Managerial Accounting in Apple Inc.:The Rationale behind its Success

Vrushali SoniNorthwest 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 2011Revenues : $108.25

billion growth of 65.96%

in one year.

MCap: $625.35 billion

Net income: $25.95 billion

Growth: 84.99% in one year

60,400 employees

• The international sales accounted for 62% of

the quarter’s 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 MANAGEMENTOperating Expense

SG&A

8%

7%

R&D

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,Tax rate was 31.8%

Federal Tax rate: 35%

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

• Assuming 50% Apple’s 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: Apple’s 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.

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

Responsibility Accounting in Employees

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 Apple’s 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