Apple Inc.: The Cost Accounting

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The paper seeks to analyze the cost accounting model of Apple Inc. The company is based in the United States and it has a global presence. Besides, it has 453 stores in sixteen countries. Further, the number of employees at the end of 2014 was 98,000. Apple, Inc. went public in the year 1977. Further, it trades on NASDAQ with the ticker symbol AAPL. Further, it is a component of Dow ones Industrial Average, S&P 500, and NASDAQ-100. The operations of the company cut across four industries; these are computer hardware, computer software, consumer electronics, and digital distribution. Specifically, the company deals with the design, production, and sale of a variety of products. Some of the key products that the company manufactures are iPod, Apple Watch, iPhone, Apple TV, and iPad among others. At the end of the 2014 financial year, the revenue generated amounted to $182.795 billion, while the net income amounted to $39.510 billion. Further, the total assets mounted to $231.839 million. The ability of the company to manufacture enables it to produce large quantities of products that can meet the high demand after a product launch. The profit margin for the company is 40%. The value is higher than that of the competitors in the industry that have an average of between 10% and 20%. Various aspects of costing for the company will be discussed in the section below.

Effect of changes in variable and fixed costs

The proportion of variable and fixed costs in the cost structure of an entity has an impact on the decision making process. It is worth mentioning that the organizations have different cost structures. The proportion of variable and fixed costs affects the responsiveness of profit to changes in volume. For example, if the fixed cost of a company increases, this causes the operating leverage to increase. The proportion of variable costs will drop and the contribution margin will go up. The resulting effect is a high value of the break-even point. This implies that the company will have to produce and sell more units of the commodity so as to be able to cover both the fixed and variable cost. Thus, such a company may take the company a long time to make a profit. The implication of this is that entities that have a high proportion of fixed costs are less elastic to fluctuations in market demand than companies that have a low amount of fixed costs. It also lowers their ability to survive during periods of the meltdown in the economy. Thus, the profit of a company that has a high value of operating leverage is more sensitive to changes in volume (Bhattacharyya, 2011).

The current cost system and the benefits of activity based costing

In the past years, companies that produced several products preferred to use traditional costing system to allocate costs. This system gave companies information on the costs of various departments in the organization. Thus, the managers in those departments were able to know the make-up of costs in those departments and come up with ways of managing those costs. However, with globalization, advancement of technology and the shifting consumer mix, entities were forced to evolve and the business environment also changed. Thus, various inadequacies were identified in the traditional costing system, especially when carrying out the planning and control function. This created the need to come up with a better system of allocating costs that took care of these inadequacies (Kinney & Raiborn, 2008). Companies started to find the need to connect their strategies with reduction of costs and improvement of quality. This led to the introduction of modern accounting techniques such as activity based costing. Apple Inc. has also gone through this process of evolution. Currently, the company is using Activity Based Costing system. This allows the company to develop new products, lower the manufacturing cost and decide on the regions to concentrate new factories. Examples of the manufacturing costs that the company incurs are labor, research and development, raw materials, and depreciation. Some of the raw materials that the company will purchase are battery, camera, touchscreen glass, processor, and supporting materials among others (Drury, 2012).

Activity based costing has generated numerous benefits to the company. First, there is an improvement of accuracy in the process of estimating the cost of a specific product line. Also, there is an improvement in the pricing of the product and stock keeping. The improvement in accuracy has led to streamlining the movement of commodities from production to the end users. Secondly, activity based costing has led to better understanding of the idea of overheads. This concept focuses on the allocation of costs that are used by the organization to the specific product lines. The concept also looks at the association between the process of allocation of cost and the specific cost drivers. This is unlike the traditional costing system where costs are allocated to the specific department and not the product line. The third advantage is that the activity based system is easy to comprehend and construe as compared to the traditional costing where it is difficult to estimate the cost of a unit of a product. This can be attributed to the fact that it is practical and accessible and can be implemented across businesses that have different arrangements. The next advantage is that the activity based costing uses the concept of marginal costing as the basis of estimating per unit cost of output. On the other hand, traditional costing uses the total cost as the base. Another advantage is that activity costing works well with other quality improvement programs, unlike the traditional costing system. An example of the quality improvement program is the Six Sigma (Kinney & Raiborn, 2008).

Another advantage is that the system is helpful in recognizing and earmarking some activities in the manufacturing process that can lead to inefficiency. Some of the activities are wastages and other services that do not lead to value addition in an organization. The next advantage is that an activity based costing system works well with modern performance management systems that are employed in an organization. Therefore, it enhances the process of improving performance. Further, the activity based costing system allows an organization to benchmark. This is an important element of quality control in an organization. It facilitates continuous improvement of quality in an organization. Finally, this system will eliminate the possibility of cost distortion. This is based on the fact that the method uses the cost pools that are created for each activity.

Comparison of actual versus actual sales forecast

In the financial year that was ended 27th September, 2014, the net sales of the company amounted to $182,795 million while the cost of sales amounted to $112,258. The budgeted sales for the company amounted to $192,000 while the budgeted cost of sales was $110,000. Thus, it can be noted that the actual sales fell short of the budgeted amount while the actual cost of sales exceeded the budgeted amount. The results of these two items were unfavorable. This had a negative impact on the budgetary planning and the estimates of the organization. There are a number of strategies that the company can put in place to respond to the changing business conditions. It is worth mentioning that the business environment changes from time to time. These changes are likely to affect the budgets and the financial plans that a business has. Therefore, it is important for a business to develop a budget that can accommodate the changes that may arise from the environment. This enables the company to respond quickly to the changes that may affect the business significantly (Drury, 2012).

First, the company needs to prepare a lean and realistic budget. This minimizes variances that may arise at the end of the period. Secondly, the management needs to review the budget on a periodic basis. For instance, the management can evaluate the budget on a weekly, monthly, and quarterly basis. The reviews should focus on the changes in the business environment, changes in strategies and whether the company is meeting its targets. The company needs to incorporate these changes in the budget so as to reflect the business environment and achievable targets (Drury, 2012). Therefore, it is good practice for a company to rely on a flexible budget and rolling forecasts rather than a static budget. However, a revision of the values in the budget should not be used as a way of covering up for improper planning. Another strategy that the company can use is prioritizing the activities to be carried out in a financial year according to strategic significance. This strategy is used by the company if there is resource limitation. In the event that the adequate resource is available, then the company swiftly adjusts the budget to accommodate the changes in the business. The next strategy is that the management needs to incorporate the element of sensitivity analysis and what if scenarios when developing the budget. This analysis needs to be made on various assumptions about by the business environment. This will allow the management to respond swiftly to the changes in performance if the actual condition is aligned to a specific state. The final strategy is that the company can set aside funds that can allow a business to take advantage of opportunities that may arise or act as a buffer when the business is not performing well (Atrill & McLaney, 2009).


The paper discussed various elements of the costing system at Apple Inc. It can be concluded that it is important for a business to maintain a suitable proportion of fixed and variable costs. This proportion also has an impact on the bottom line of the entity. Also, it is important for an organization to use a modern costing system. This will improve the performance of the company. Finally, a company needs to maintain a flexible budget. This allows the management to make adjustments to the forecast. It also minimizes the amount of variances.


Atrill, P., & McLaney, E. (2009). Management accounting for decision makers. Europe: Prentice Hall.

Bhattacharyya, D. (2011). Management accounting: marginal costing and cost-volume-profit analysis. South Asia: Dorling Kindersley (India) Pvt. Ltd.

Drury, C. (2012). Management and cost accounting. United States of America: Cengage Learning.

Kinney, M. & Raiborn, C. (2008). Cost accounting: foundations and evolutions. New York: Cengage Learning.

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