Apple Inc. is a manufacturing concern in the electronic industry. Apple Inc has its headquarters in the United States of America. It produces a range of electronic products ranging from hardware products like the Mac personal computers, iPads, iPods and iPhones. Its software products in the market include the following: the OS X and the iOS operating systems and iTunes music browser, iWork and iLife creativity suites. The company operations span the entire globe. Apple Inc. had three hundred and sixty four retail outlets as at July 2011. In addition, Apple Inc. runs a successful online retail services that operate in the entire global market. Consequently Apple posts substantial annual revenues. In 2011, it posted annual revenue for the financial year ended 2011 amounting to United States Dollars one hundred and eight billion. It employee data shows that it had as at the end of 2011 sixty thousand four hundred permanently employed personnel and two thousand nine hundred personnel employed on a temporary basis. The market capitalization of Apple Inc. stood at $ 622.98 billion.
Allocation of costs
Apple Inc. can, therefore, be split into departments, divisions, products, plants, among other sections. The allocation of costs ought to be carefully and prudently settled if the company is to achieve smooth and harmonized operations that would effectively achieve the objective of seeking profit. The best allocation system should be the adoption of the activity based costing systems. In this approach, Apple Inc. would allocate costs to the departments in relation to the particular activities they perform. This system would require the separation of the entire concern into various functions. The concern would be divided into units based on the functions. The activities relating to a particular function would then be pooled together within that respective function. The consequential costs would be allocated to that function. This could be contemplated in terms of the products that the company produces. The entire production would be split into the individual products such as the iPod, the Mac, the iPhones, among others. The activities that go into the production of a specific product would be pooled together under that function. It is expected that the products would need the services common to all of them. At this point, the services costs, usually referred to as overheads, would be shared across the functions in the ratio of the activity levels. The application may not necessarily be limited to the production process only. It can extend into the additional services such marketing, warehousing, retail and distribution services. Various product functions would have to absorb the costs in the ratio of the amount of input a service is committed to their products. For instance, the distribution costs would be shared across the functions in the ratio of the total costs of the total tons of products distributed per function. If the distributions costs are incurred in the transportation of say Mac computers only, then one hundred percent of the costs would be absorbed by the Mac functional unit.
Gaining a competitive advantage in the market through the use of activity based accounting and activity based management
Businesses today focus on earning profits and minimizing costs. The model to employ in achieving that objective should entail the process of enhancing the profitable activities and improving on the loss making activities. The activity based costing and management, gives the management the opportunity to identify and evaluate individual performance of activities. As such, the management would be at a point of knowledge about the proper mechanisms to employ on each activity. The model enables the management independently analyze the costs against the benefits that each activity comes with. It facilitates the absorption of overheads in relation to the consumption by each activity. The evaluation availed by the use of activity based costing and management enable businesses to address the systemic failures inherent in each independent activity. The measures available to the management include reinvestment, conversion of techniques of production and in extreme cases the halt of loss making activities. In addition, the model also assists in the pro rata allocation of overheads in the ratio of utility by the functions. This would be useful in the decision making processes. Activity based costing and management, therefore, provides a prudent and informed manner of evaluating and analyzing the performance of individual products within the same unit. It gives the opportunity for the concern to separate profitable products from loss making products. It is this information that aids the company in making strategic decisions that would position them strategically in the larger market.
Impact on the financial reports of the use of standardized costing and inventory costing methods
Standardized costing techniques and inventory costing methods have various effects on the financial reporting of the company. The costing technique method employed has inherent weaknesses and strengths which would consequently reflect on the financial report. The financial reports in consideration include the consolidated income statement and the statement of financial position. Both of these statements reflect elements and items that would rely on the cost and inventory costing methods. The consolidated income statement essentially shows the income calculated through the deduction of expenses from the gross incomes and sales revenues. The standardized costing method employed would determine the figures to be posted as expenses in the consolidated income statement. If, for instance, the company employs the standardized costing system of averaging the costs and using the average of the various costs, the figure of expense posted on the income statement would inevitably fail on the test of accuracy. This is because it fails to give the exact amount of expense incurred. It, therefore, goes against the practice of accounting for expenses in relation to the financial year in which it is incurred. However, this inaccuracy should not be conceived as a departure from compliance with the accounting standards. The inaccuracies are expected to balance out and at the end of the periods the figures would not substantially deviate from the actual. In addition, the method suffices to address the challenge of determining the exact expense incurred in concerns like Apple Inc. where the costs may overlap due to the continuity in production.
Similarly, the inventory costing methods affect the values used in financial reporting. Take, for example, the valuation of stock in the statement of financial position. If, the company adopts the use of FIFO method, it essentially implies that the costs would be reflected employing the records. FIFO uses the valuation of first in, being first out. However, the accrual of inventory in the stores may not facilitate consumption in consonance with the first in first out principle. Therefore, by this technicality, the values posted as the inventory in the statement of financial position would be inaccurate. The actual values would be technically unascertainable. Standardized costing and inventory valuation techniques, therefore, affect the accuracy of the statement during financial reporting. The remedy for the limitation of the effects lies in the use of a common technique or method. This enables the system automatically compensate for the inaccuracies. In addition, it should be noted that the inherent inaccuracies are slight and would not constitute enough thresholds to render accounts non compliant to the general accounting standards. With the application of one consistent method of costing, auditors would certify the accounts as consistent with the accounting standards.
Influence on product variance costing analysis on operational and business decisions
Variance costing analysis essentially identifies the deviants from the actual consumption or production to the budgeted values. In some cases, this analysis can be stretched into comparing a third parameter, the standardized values. The variances show the deviation which would be considered adverse or favorable. In analyzing costs, the deviations lower than the budgeted costs are considered favorable while the deviations above the budgeted costs are adverse. In production, the converse holds, that is, deviations below the budgeted output, are considered to be adverse while the deviations below the budgeted are considered to be favorable. The variances are used as parameters in examining the performance of the production process. The variances would indicate the effectiveness of the process employed in the production. Consequently, variances have been used in making operational and business decisions. The objective in business is usually to make profits. As such, the decision would employ a model that maximizes income and minimizes costs. The variances are identified and corrective measures pursued in the event of adverse variances. Equally, for the favorable variances, the management would be encouraged into making decisions that fundamentally facilitates the processes that led to the favorable variances. Variance analysis, therefore, plays an instrumental role in decision making processes.
In minimizing operational costs, businesses analyze the adverse variances and identify the remedial measures to pursue. They dedicate more attention to the units where the adverse variances were more than normal. Equally, the management donates their time they would have spent in supervising the units with favorable variances to other units that require attention. Variances hence suffice as the evaluation mechanism that informs decision making processes.
In conclusion, Apple Inc. continues to perform well in the market. In fact, in 2008, Fortune magazine ranked Apple Inc. as the most admired company in the United States of America. However, leadership in the market is difficult to maintain especially in appreciation of competition from the entire world. Apple Inc. must, therefore, position itself strategically. It ought to pursue activity based costing and management in order to effectively handle its enormous manufacturing concern. It must effectively and fairly allocate its costs employing the most prudent method that guarantees the best results and an informed approach in decision making process. In addition, it should apply consistent standardized and inventory costing techniques. This would enable it attain consistent application of accounting reporting standards. Finally, the company should utilize variance analysis to make the operational and managerial decisions that aim at the maximization of profits and minimization of costs.
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