What is Apple’s costing method?
The secret behind Apple costing method is their activity-based approach that has been around since the 1980s but hasn’t been widely adopted until recently. our writers will! What Is Activity-Based Costing and How Does It Work?
Why are product costs distorted in Apple’s costing?
Thus, product costs are distorted. -The existing cost system distorts profit estimation due to Apple’s exposure to stock fluctuations as a result of its costing profit being a function of both sales and production. -Apple’s divisional managers have to deal with fixed overheads being capitalized in unsaleable stock.
How is Apple allocating common costs to products?
Apple PLC is currently allocating common costs to products using absorption costing system. This is a process of allocating fixed and variable overhead costs to products. This system has become a problem because of the incentive compensation scheme in place.
How does Apple use absorption costing to boost demand?
Through this approach, businesses like Apple can eliminate unprofitable products from their lineups and lower the rates of overpriced offers to boost demand. Conventional absorption costing methods include job order and process cost systems and are used to estimate the product price and the value of the production facility inventory.
What kind of costing does Apple use?
The bottom line is that ABC costing and standard costing can be used effectively by the Apple Inc.
What companies use process costing?
Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).
Does Apple use absorption costing?
Apple Plc currently employs absorption-based costing with the current costing structure expressed below.
What companies use job order costing and process costing?
Below are examples of different types of companies using job order costing systems to track inventory and how the process differs.Retail companies.Law firms and accounting businesses.Medical services.Film studios.Construction companies.
Which industry does not use process costing?
Process Costing is not used in Aircraft Manufacturing Industries as manufacturing an aircraft does not involve the production of similar products i.e. parts like engine, fuel tank, flaps, navigation light, elevator, etc.
Does Coca-Cola use process costing?
No matter who the customer is, they all end up receiving the same product. For example, Coca-Cola may use process costing to track its costs to produce its beverages.
Does Apple use target costing?
Target costing is widely used. For example, Mercedes and Toyota in the automobile industry, Panasonic and Sharp in the electronic industry, and Apple and Toshiba in the personal computer industry use target costing (Maher, Stickney and Weil, 1997).
Does Apple use FIFO or LIFO?
Apple uses FIFO Following the FIFO model, Apple sells the units of its older models first.
How does Apple make its money?
iPhone is Apple's most valuable product and has, since 2008, been its main source of revenue. Even though Apple has diversified its product line with Watch, AirPods and services, iPhone is still responsible for 50 percent of Apple's revenue.
Does Nike use job costing?
Nike uses a job order cost system and applies factory overhead to production orders on the basis of direct labor cost.
Why do companies use process costing?
Process costing is used when there is mass production of similar products, where the costs associated with individual units of output cannot be differentiated from each other. In other words, the cost of each product produced is assumed to be the same as the cost of every other product.
How does Boeing use job costing?
Since most of Boeing's products are unique and costly, the company likely uses job costing to track costs associated with each product it manufactures. For example, the costly direct materials that go into each jetliner produced are tracked using a job cost sheet.
Why does Apple keep the selling price constant?
This is because the price of that product will not change when the volume changes. They also don’t change their inventories. They continue producing the same number of units which equals the number of units they sale.
How does Apple sell its products?
Products produced by Apple are sold worldwide through the internet, retail stores, and direct sales. Additionally, Apple Inc sells its products via wholesales, cellular network carriers; value added sales and retailers in most countries.
How long does it take to build an iPhone?
To build an iPhone the company takes about 24 hours. The software is installed and tested with other components within 6 to 8 hours. the workers in the company are payed about $1.78 per hour, if they spend 17 hours working then they will be payed about $30 .this is the cost for labor of one iPhones.
How many categories of cost are there in the iPhone?
In order to build the iPhone, Apple has a cost structure to follow. An iPhone has about four categories of cost. These categories include: the cost used for the components that make the device also known as Bill of material (BOM).These money is usually paid to the suppliers who bring the components.
What are Apple's assumptions?
These assumptions include: their sales mix is constant since they have many products, once one product goes down it can be supplemented by the other. Also their product cost is linear and they divide them to fix and variable costs.
How does Apple impact the world?
Apple’s cutting edge products have had a major impact on the lives of people globally by providing highly technological and modern products that have made the modern lifestyle classy and enjoyable. The company’s products are consumed globally and are the market leader in quality. Although the company targets the middle and upper class market ...
What are the main reasons for Apple's success?
Innovation, creativity and design are the main reasons that have driven the company to the current level of prosperity. In 1976 apple launched apple I personal computer, which was followed closely by Apple II which was very successful. Mactosh was introduced in style in the year 1984.
Why is Apple a company?
The company is Apple to monitor all the costs of its operations from the beginning of the production process to the time the product reaches the final customer. Also, it can give a clear indication of the customer reactions to the costing system the company uses.
Why is costing method important?
This type of costing method is appropriate because it increases the manufacturing overhead costs and limits their correlation with the direct labour inputs and machine working hours. It also helps diversify the products and customers tastes. Lastly, it helps control the rate of production of different products.
What is Apple management?
The management of Apple Company uses the operation to identify the main steps in the manufacturing process.
What is the ABC method of Apple?
Apple Inc. uses the activity-based costing method to value its products. The method of activity based costing method that Apple Company uses is activity based management. ABC provides the management with the necessary information that it uses for its decision making and planning. The control Apple uses the ABC approach to making decisions about it ...
What is activity based costing?
Activity based costing is given costs to products and services depending on the activities that the production uses and the resources that are utilised by these activities. It helps in determining the exact costs of the products or services. Apple Inc. uses the activity-based costing method to value its products.
What is activity based costing?
Activity-Based Costing is a system that calculates the costs of individual activities and assigns costs to cost objects on the basis of the activities undertaken to produce each product or service. It is claimed that ABC is particularly useful in companies when:
What is management accounting?
Management accounting can be defined as a process of providing appropriate information primarily intended to assist managers in making better decisions (Drury, 1998).
Is activity based costing or throughput accounting useful?
The use of Activity-Based Costing or throughput accounting will be useful in the long run that considers the entire life-cycle of a product. This is unlike CVP that is only appropriate for short run marginal analysis.
What is the difference between traditional approach and ABC?
Traditional Approach - Absorption Approach#N#The difference between the traditional method and ABC can be only noticed when there are different types of products produced by Apple and indirect costs compris e a significant chunk of the overall cost structure of Apple.#N#One of the key reasons why small firms still use traditional method is its sheer simplicity. ABC can be highly complex if the firm is present in number of industries and, produce & market various products around firm's core competency.#N#How direct costs are treated in ABC? Is it different from the way it is treated under traditional approach?#N#The answer is no difference at all. ABC is concerned only with the way in which overheads are charged to jobs to derive the full cost.
What is Apple's standard product?
Standard Product is lot simpler than Custom Product, so Apple produces Standard product in large batch sizes compare to Custom product which is produced in smaller batch sizes .
How to calculate per unit overhead cost?
There are two steps to calculate per unit overhead costs using ABC method. First calculate per unit cost based on cost driver usage by specific product and then add those overhead costs for the product to arrive at Per Unit Overhead Cost of a product
How does activity costing improve costing?
Activity Based Costing can improve the costing process at Apple in three prominent ways –#N#By increasing the number of cost pools – ABC help in identifying the activities that are being performed by organization’s resources. Often too narrow allocation can result in unclear understanding of both activities and how resources spent on them.#N#By assigning costs to various activities that are segmented based on the role they perform in overall processes. Instead of treating all indirect costs as one organization wide pool, ABC pools the costs based on each activity.#N#Finally assigning costs to respective products, service and customers activities in the organization using activity cost drivers.
What is target costing?
Target costing is an effort on part of firm to reduce costs to an extent where they cover cost plus expected profits. It is often done when firm employ cost plus pricing strategy.
Why do small firms use traditional methods?
One of the key reasons why small firms still use traditional method is its sheer simplicity. ABC can be highly complex if the firm is present in number of industries and, produce & market various products around firm's core competency.
What is relevant costing in Apple?
Make or buy decision: Relevant costing is a useful tool for make or buy decisions in Apple.
Why do Apple have distinct cost groups?
Apple Inc. has distinct cost groups for each merchandise line manufactured. This is because costs tend to arise at this stage of the activity-based costing.
Why is Apple so good?
One of the main benefits that Apple enjoys from using this system is greater costing accuracy. Apple Inc. can assign costs only to the products that need the activity for production. This way, the company is able to eliminate allocating of irrelevant costs to the production of a good or service.
What is standard costing?
Standard costing refers to the process of substituting a cost that is expected to an actual cost in the accounting records of a firm (Warren et al., 2013). After that, variances showing the difference between the actual and expected costs are recorded periodically. The use of standard costs is a simplified substitute for cost layering systems applied by firms such as FIFO and LIFO, which entail the use of great volumes of historical cost information maintenance for products held in the stock. It involves the creation of an estimated cost for an activity in the company. The reason for using standard costs is related to applications that require much time to collect their actual costs. Hence, standard costs can be used to represent an approximation that is close to actual costs.
What are the competitors of Apple?
Some of the major competitors for Apple Inc. Includes; Google Incorporation: Google is one of the Apple competitors in different markets. Google produce Android-powered smartphones which compete with Apple’s iPhone. Google also provide cloud services using Google Drive, which competes with Apple’s iCloud.
Where is Apple located?
Apple Incorporation is a multinational IT company whose headquarters is located in Cupertino in California. The corporation was started in the year 1976 by Steve Jobs, Ronald Wayne, and Steve Wozniak (Investor.apple.com, 2016). The corporation designs and manufacture customer electronics and PC software.
What is activity based costing?
Activity-based costing is a costing technique where costs to products or services are assigned based on the resources they consume (Schulze et al., 2012). Activity-based costing system assigns costs to those operations that are the real cause of the overhead costs in the organization. The activity-based system can be utilized for the targeted reduction of overhead costs. This costing system is ideal for complex environments such as Apple incorporations. This is because there are many machineries, produced merchandises and interwoven processes that make it complex to sort out.
What Is Activity-Based Costing and How Does It Work?
- Activity-based costing (ABC) is a tried-and-true approach of making product price estimates more precise through assigning actual costs to every activity and resource that goes into the manufacturing of the final product. Unlike conventional accounting methods, this approach assigns direct costs to indirect expenses (overheads), resulting in accurate calculations and bet…
Traditional Approach to Costing
- Conventional absorption costing methods include job order and process cost systems and are used to estimate the product price and the value of the production facility inventory. These approaches rely on the product cost “absorbing” all the manufacturing expenses regardless of their nature. As a result, the product prices can be unreasonably inflated, and the facilities are in…
Solving Apple’s Costing Problems Through ABC
- Absorption costing works for many retail and manufacturing businesses due to its straightforward and reliable nature. However, the common approach may be problematic for electronics giants that produce a broad lineup of products for various applications and markets. So does Apple use job costing or process costing? The answer is neither, as Apple r...
The Benefits of The Activity-Based Costing System For Apple
- The general increase in efficiency and profit derived from Apple activity based costing approach is better illustrated through individual benefits derived throughout the manufacturing and sales processes. 1. ABC accounts for a variety of operational factors outside the conventional production volume metrics. 2. ABC showcases the relationships between the process performa…
Implementing The ABC Technique
- The increasing adoption of ABC techniques is hindered by the complexity of the introduction and initial ABC system setup that requires extensive investment. In general, the process can be divided into four stages that can be repeated in an iterative cycle until the desired results are achieved: 1. System design and construction. The system can be considered as a means to high…
The Limitations of The ABC Costing Method
- Despite its numerous benefits, ABC is not a panacea, nor is it universally applicable for every business regardless of the industry and niche. The level of accuracy ABC provides requires vast amounts of data to be collected and analyzed, which translates into additional costs throughout the ABC system setup and its ongoing maintenance. Without properly sourced manufacturing a…
Summary
- Activity-based costing was developed to solve the businesses’ growing dissatisfaction with the existing absorption costing models. As the business outputs become ever diverse, managers have to adopt new ways to account for extra variables that affect the product cost in unpredictable ways. And while incorporating the ABC approach is not an easy or a fast task, busi…
Introduction
Nature of Management Accounting
Limitations of The Traditional Management Accounting Techniques
The Role of Management Accounting Information in Strategy
Make Or Buy Decisions
Traditional Technique
Contemporary Technique
Product-Mix Decision
Situation
- Apple PLC is currently allocating common costs to products using absorption costing system. This is a process of allocating fixed and variable overhead costs to products. This system has become a problem because of the incentive compensation scheme in place. Every division is presently evaluated based on their ability to meet the minimum profit mar...
Limitations and Consequences of Absorption Costing System Adoption in Apple Plc