APPLE and Managerial Accounting

Ranked first as the most admirable company in the world, and 17 in the Fortune 500 companies, Apple Inc. is truly one of world’s best. Through the ups and downs since the day it was established in January 3, 1977, Apple has develop 57 products, services, peripherals, networking solutions, third party digital content and application among which major products and services include iMac (personal computer),MacBook (laptop), Xserve (server), iPad (tablet PC), iPod (MP3 player), and iTunes (music downloading software). With a total of 395 stores operating worldwide, Apple has generated $ 41 billion of net income by the end of 2012. 

Everyone probably wondered and questioned what could possibly be the secret key success of Apple?  Is it their innovative product?  Or is it their marketing strategy? Well, both are correct. In America alone, 51% of American citizen owned an Apple product. Apple is selling their product like hot cakes. But now, let us take a closer look in their managerial accounting system. It sure is also contributed to the success of Apple.

According to Soni (2012), there are two factors discussed, they are: cost management, and responsibility accounting. Soni(2012) stated that Apple is known for its efficient cost. It has managed to decrease its operating cost percentage of its total sales. The biggest proportion of expense for Apple is inevitably its R&D expenses. However in compared to its competitor, Apple is ranked 18^th in the list of highest R&D expenses in technological company meaning other technology company spend even more on R&D compared to Apple. But still Apple is consider pioneer in innovation. Besides a cost control in R&D department, Apple also succeeded in controlling its tax expenses. Building its R&D centre in the U.S and manufacturing sites in China, Apple managed to cut tax expenses as the law in U.S does not charge tax on foreign earnings. Only 30% of its revenue generated from the United States. Another cost efficient factor is the number of employee employed is also less compared to other tech giants therefore Apple  can control  their SG&A expense.

The second factor is responsibility accounting. Every person has a specific function in which they are accounted for. Accountability is strictly enforced in Apple. Communication is cleaer between top and bottom level employees. In Apple, DRI is a very famous term. It stands for Directly responsible Individual. Every individual is assign to be responsible for an ongoing small or big function. This procedure help to cut free-rider problem in Apple, and give a clear and fair evaluation system. One individual will only be evaluated based on the function that he/she is responsible for. Another advantage of implementing this responsibility accounting is it avoids confusion and focuses on very few products/services at one time (Lashinsky, 2011). This way Apple can also managed to control its R&D expenses at a particular period of time.

Based on this short discussion, we can assume that Apple has not only succeeded in developing its brand and product, but internally it has also succeeded in implementing a good managerial accounting which led to an overall success and becoming one of the best company in the world.

Reference :

1. Soni V. (2012), " Managerial Accounting in Apple Inc.:The Rationale behind its Success" retrieved from: http://www.scribd.com/doc/109769519/Managerial-Accounting-principles-applied-in-Apple-Inc

 2. Fortune 500 list retrieved from: http://money.cnn.com/magazines/fortune/fortune500/