MASTERS OF COMMERCE

SEMESTER 4

A Study on the Analysis of Costing

Technique Implemented by Apple Inc.

SUB: COO 415 COST MANAGEMENT AND

CONTROL

CLASS: MCOM PART II

Roll no.: 19P0310314

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 INDEX
SNO. CONTENTS PAGE NO.
1. CHAPTER 1: INTRODUCTION 3-7
2. CHAPTER 2: LITERATURE REVIEWS 8
3. CHAPTER 3: DATA ANALYSIS 9-13
4. CHAPTER 4: FINDINGS AND CONCLUSIONS 14
5. BIBLIOGRAPHY 15

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 CHAPTER 1: INTRODUCTION
PROFILE OF APPLE INC.
Apple is a company that is based in Cupertino, California. The headquarter in California,
America is best known for the development process, the design processes as well as the sales.
Apple is known for selling computer software, online computer services, and also electronics.
Some of the hardware products courtesy of Apple include iPad tablets, iPhones smartphones,
Apple digital televisions, iPod media players among others. Some software produced by Apple
includes iOS operating system and iTunes media player. Apple is widely known for their unique
and functional designs that keep enhancing both existing and new customers. In fact, Apple is
among the world’s largest company in terms of information and technology. Also, it is among
the leaders of phone manufacturers across the globe. This investigative report seeks to analyze
and put into perspective the general characteristics of Apple as an industry. The report will also
explain different demographic as well as technological factors that help Apple as a company to
grow and maintain the revenue status that it has. There are various factors that affect the
productivity and stability of Apple as a company. Those issues will be discussed, as well as the
manner in which the company deals with the issues. Also, the report will feature the general
environment of the company

A Brief History of Apple

Apple’s mission statement, “Apple designs Macs, the best personal computers in the world,
along with OS X, iLife, iWork and professional software. Apple leads the digital music
revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its
revolutionary iPhone and App Store, and is defining the future of mobile media and computing
devices with iPad.” (Apple investor website, 2012). More succinctly, they continue to improve
upon the user’s experience when it comes to personal technology. Apple currently has over
60,000 employees across 12 countries in over 357 stores and offices. The world’s most valuable
company bases its operations in Cupertino, California (CNN website, 2012), but had much more
humble beginnings, starting in the garage of its co-founders.

Beginning their work in 1976, Steve Wozniak and Steve Jobs worked together to create the first
ever Apple computer, the Apple I. This computer, born of nothing more than a wooden case and
silicone transistors, would lead to the start of a personal computing revolution. Before Apple
Computer Inc. was founded in 1977, the very idea of owning a personal computer was alien to
most, if not all, of the world. During the next decade, competition between Apple Computer Inc.,
and International Business Machines (IBM) would produce the modern personal computer and
many of the ancestors of products we use today.

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The first Macintosh (Mac) was introduced in 1984. This computer was designed with the user as
its focus, introducing the mouse and graphical user interface to the masses. Revolutionary in its
design and cost, the Mac became synonymous with personal computing and started Apple
Computer down the road to success. Throughout the rest of the ‘80s and ‘90s, Apple continued to
introduce new products such as the first portable computer (Macintosh Portable - 1989), first
handheld (Newton - 1993) and first “i” branded products (iMac - 1998, iBook - 1999).

With the start of the new millennium came the introduction of a product which would change the
face of not only the computer industry but the music, movie and entertainment industries as well.
In 2001 Apple released the iPod and forever changed the way people get and enjoy their music.
With continued development and refinement of their designs and user experiences, Apple is now
“defining the future of mobile media and computing devices with the iPad” (Apple investor
website, 2012). While their product line up and history is deep, the products Apple creates are
not the only side of the story.

Total Quality Management (TQM)

Quality was defined as a dynamic state associated with products, services, people, processes and
environments that meet or exceed current expectations (Goetsch and Davis 1995). Thus, TQM is
an approach to doing business that attempts to maximize the competitiveness of an organization
through continual improvement in the quality of its products, services, people, processes and
environments (Goetsch and Davis 1995). TQM has nine key elements shown in Exhibit 1
(Goetsch and Davis, 1995).

The TQM movement was started in the early 1900s by Fredrick Taylor, the father of scientific
management. After that, this movement evolved by some quality scholars, such as Walter A.
Shewhart, W. Edwards Deming, Joseph M. Juran, and Philip Crosby, and some organizations
such as Toyota and General Electric (Goetsch and Davis 1995).

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A successful TQM implementation will always follow eight key principles:

TQM is focused on the customer. The ultimate measure of success is the customer's satisfaction
with the product. All employees must be involved in the process at a high level to ensure
success. Strategies are focused on processes, and on the steps necessary to complete them. The
parts of a process should be smoothly integrated into a larger, cohesive process. Processes
should be organized strategically, with an eye toward both short- and long-term goals.
Strategies should aim toward continual improvement of products and processes. Facts and
data are indispensable for making decisions and implementing changes. Effective
communication plays a vital role in keeping an organization running smoothly, both during
day-to-day operations and in times of organizational change.

ADVANTAGES

• Emphasizing the needs of the market:

QM helps in highlighting the needs of the market. Its application is universal and helps the
organization to identify and meet the needs the market in a better way.

• Assures better quality performance in every sphere of activity:

Adverse and non-participative attitudes of the employees are the biggest obstacles in the
organization’s success, growth and advancement. TQM stresses on bringing attitudinal changes
and improvements in the performance of employees by promoting proper work culture and
effective team work

• Helps in checking non-productive activities and waste:

Every organization aims at improving productivity as well as reduction in cost so as to result in

increase in profitability. Under TQM, quality improvement teams are constituted to reduce waste
and inefficiency of every king by introducing systematic approach.

• Helpful in meeting the competition:

TQM techniques are greatly helpful in understanding the competition and also developing an
effective combating strategy. Due to the cut throat competition, the very survival of many
organizations has become very vital issue.

• It helps in developing an adequate system of communication:

Faulty and inadequate communication and improper procedures act as stumbling blocks in the
way of proper development of an organization. It results in misunderstanding, low- productivity,
poor quality, duplication of efforts and low morale. QM techniques bind together members of

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various related sections, departments and levels of management for effective communication and
interaction.

DISADVANTAGES

• Production Disruption

Implementing a Total Quality Management system in a company requires extensive training of

employees and these requires them to take some time of their day-to-day work duties. While the
improvements do reduce lead time, eliminate waste and improve productivity, the beginning
stages of implementing Total Quality Management in an organization can reduce worker output.

• Employee Resistance

Total Quality Management requires change in mindset, attitude and methods for performing their
jobs. When management does not effectively communicate the team approach of Total Quality
Management, workers may become fearful, which leads to employee resistance. When workers
resist the program, it can lower employee morale and productivity for the business.

• Quality is Expensive

TQM is expensive to implement. Implementation often comes with additional training costs,
team-development costs, infrastructural improvement costs, consultant fees and the like.

• Discourages Creativity

TQM focus on task standardization to ensure consistency discourages creativity and innovation.
It also discourages new ideas that can possibly improve productivity

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RESEARCH METHODOLOGY
Research can be defined as ‘an activity that involves finding out, in a more or less systematic
way, things you did not know.’ (Walliman and Walliman, 2011, p.7). ‘Methodology is the
philosophical framework within which the research is conducted or the foundation upon which
the research is based.’ (Brown, 2006).

Research Methodology of a research describes research methods, approaches and designs in

detail highlighting those used throughout the study, justifying the choice by describing
advantages and disadvantages of each approach and design taking into account their practical
applicability to the research.

OBJECTIVES OF THE STUDY

i. To identify and briefly assess the cost technique implemented by Apple Inc.
ii. To analyze the Total Quality Management (TQM) technique by Apple Inc.

SOURCES OF DATA

The data collected for the study is purely based on secondary data and takes into
consideration data collected from the website of Apple Inc.., research papers, websites like
moneycontrol.com, Wikipedia and other such informative search engines.

LIMITATIONS OF THE STUDY

i. Only one company has been taken for the purpose of analysis of the specified cost
technique.
ii. The study is limited to only one cost management technique i.e. Total Quality
Management (TQM)

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 CHAPTER 2: LITERATURE REVIEWS

1. Author: S.Siva, Moses Joshua Daniel, S.Shalini, “A Study On Marginal

Costing In Godrej Consumer Products Ltd, Vol 2(4), [ISSN: 2319-2836].

According to the author of the above-mentioned research paper the marginal cost of a product is
its “variable cost”. The study further gives a brief about the various principles of marginal
costing which includes revenue, cost and profit. Also a brief about the Godrej company profile is
given.

The analysis part of the study contains the growth rate based on different years using marginal
costing technique. Further the hypotheses are also tested based on the analysis. Finally the
conclusion drawn says that the growth rate seen through the analysis shows profit as satisfactory.

2. Author: Rashmi M.J, Dr. M.S Yathish Chandra, “Analysis Of Cost

Control Mechanism Karnataka Soaps And Detergent Limited,
Sandalwood Oil Division Mysuru, VOL:19, [ISSN: E- 2278-487X, P-
2319-7668].

According to the author of the above-mentioned research paper a cost control mechanism sets a

platform for managers to make strategic decisions towards production process. The date used is

based on both primary and secondary data.

Data analysis part includes various objectives like to examine the cost effectiveness of the
company, to compare the difference between standard and actual cost etc. the analysis also
shows calculates BEP. Various findings and suggestions are also given in the study.

Finally the conclusion says that the company has separate department for cost accounting and

that it is a must for every manufacturing company.

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 CHAPTER 3: DATA ANALYSIS
Apple’s Management Philosophy Vs. TQM

Deming’s Five Steps

Dr. Deming proposed five steps to link the organization’s processes with the customers’ need.
These steps are called Deming Cycle which shown in Exhibit 3. It was developed to connect the
organization with the consumers in order to direct all the organization’s work on customers’
satisfaction and achieve the organization’s goals (Goetsch and Davis, 1995). Apple did not
follow these five steps as it appling Dr. Deming. steps. Yet, what apple did is reflective what is
summarize by Dr. Deming in each of these five steps as clarified in this study

Exhibit. Deming Cycle: The five steps link the production of a product with consumer needs.

Step 1: Conduct consumer research and use it in planning the product.

Apple doesn’t conduct consumer research in the traditional sense, such as through focus groups
and surveys. This does not mean that they do not desire and or take input from the customers
who use their products. Through observations of consumer behavior and interactions with their
products at Apple stores, Jonathan Ive, Senior VP of Design has honed Apple’s products to
achieve a nonintimidating and quality design (frog design website 2012).

Step 2: Produce the Product.

Apple produced its first products, personal desktop computers, by hand out of one of its co-
founders’ garages. Today, the company produces its personal computing devices by the millions
in factories throughout the world. In 2011 alone they sold over 93 million iPhones and 40 million
iPads to consumers (abcnwes website, 2012). While the technology and scale may have changed,
one thing that remains is the ‘by-hand’ assembly of its products.

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Step 3: Check the product to make sure it was produced in accordance with the plan.

Apple’s Infinite Loop testing labs ensure that the company’s products are tested just as
rigorously as they are produced, marketed and sold. One example of a design flaw which was
then retested and redesigned revolves around the iPhone 4’s antenna. With signal detection and
attenuation issues at the heart of the problem, Apple’s labs employed 17-million-dollar anechoic
chambers to track down the problem and correct the design.

Step 4. Market the product. Apple’s marketing strategy from the beginning was nothing
short of ground breaking.

The battle between big business and personal computing was staged in the 1980s and Apple
launched a large attack in the form of their Macintosh debut TV ad which ran during the 1984
Super Bowl. Heralded as one of the greatest commercials in recent history, the ad depicted a
dystopian future with black and white “big brother” (IBM) versus an in color marathon running
woman hurling a sledge hammer at the status quo (Apple). The modern-day advertisement and
marketing strategy of Apple continues to innovate and showcase the capability of their products.

Step 5. Analyze how the product is received in the marketplace in terms of quality, cost,
and other criteria.

When Apple produces a product with flaws, they work to correct and then perfect their products.
Former CEO, Steve Jobs, once stated “When we fall short, which we do sometimes, we try
harder, we pick ourselves up and figure out what’s wrong and we try harder.” He followed with a
statement on their successes as well telling the audience, “When we succeed, they reward us by
staying users” (Business insider website, 2018). Between those two statements, it is clear that
Apple is invested in how their products are received by customers and aims to continually
improve their products lines.

Deming’s Fourteen Points

Dr. Deming’s Fourteen Points summarize his philosophy for management. Scholtes (1992) states
that these fourteen points describe the important elements for any organization to survive and be
competitive in their respective arena. Moreover, he described them as the core of Dr. Deming’s
philosophy, and how they summarize his methods (Scholtes 1992). These points are shown in
Exhibit below.

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 Exhibit. Dr. Deming’s fourteen points which represent his management philosophy

The Fourteen Points and Apple When comparing Apple’s approach to their product and service
development with that of the ideals held within Deming’s fourteen points, it becomes rapidly
apparent that there are many similarities. By looking to the first two points about a constancy of
purpose and a new philosophy, we can see that Apple incorporates these principles in the way
they approach designing a new product. Jonathan Ive, Senior Vice President of Industrial Design
at Apple, stated in an interview with the London Evening Standard that "Most of our competitors
are interested in doing something different, or want to appear new - I think those are completely
the wrong goals. A product has to be genuinely better." (Prigg, 2012). Apple's intent is to
"replace entire categories of device rather than tactically responding to an individual problem."
This manner of approach separates Apple from many of its competitors and has helped to elevate
their success. Further, as stated previously Apple strives to make its mark by improving its
products continuously. Each year new, updated, and improved versions of their product lines are
produced. These iterations are not only completed to improve the bottom line of the company,
but also to correct errors in designs (such as the iPhone 4 antenna).

While Apple strives to improve their products, they also have an eye towards their people. Apple
University, an executive training program, was established under CEO Steve Jobs. The Los
Angeles Times quoted an anonymous source as saying, "Steve was looking to his legacy. The
idea was to take what is unique about Apple and create forum that can impart that DNA to future
generations of Apple employees." (Guynn, 2011). This is a sterling example of Deming's points
number 6, 7, and 13 in the above Exhibit. Through instituting on the job training for its future
leadership Apple established a vigorous program of education and self-improvement amongst its

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employees. One of those executives, Tim Cook, would find himself filling Steve Jobs shoes
sooner than expected after the former CEO passed away in the Fall of 2011.

Apple may not have implemented all of Dr. Deming's fourteen points; however, some of the
ideals within them have been captured. Dr. Deming himself instructed that the implementation of
total quality was not a cookie cutter solution to be applied the same way to every organization.
Each company and/or organization must apply TQM in a manner and method appropriate to the
individual traits and unique attributes that make them successful.

Seven Deadly Diseases

Dr. Deming stated seven factors that he believes constrain organizations from development.
These factors are called the Seven Deadly Diseases, which summarize Dr. Deming's views
(Goetsch and Davis, 1995). Exhibit below shows this Seven Deadly Diseases.

Exhibit. The Seven Deadly Diseases which summarizes Dr. Deming's views on factors that inhibit businesses.

An organization must avoid the Seven Deadly Diseases to be successful in business and provide
unconstrained development. According to Goetsch and Davis (1995), TQM can help to eliminate
some of the problems associated with the diseases but it cannot "...free corporate executives from
pressure to produce short-term profits, excessive medical costs or excessive liability costs."
Apple is a company that is very confidential on its exact management techniques. This makes it
difficult to evaluate on its methods of personal review systems for managers, its exact decision-
making process or if it conducts internal management solely by objectives. However, their goals
in the personal computing industry and actions demonstrate that they have been successful at
avoiding many of the Seven Deadly Diseases.

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Apple's approach to its customers and business appears to have helped it to avoid falling into
some of the pitfalls described by the Seven Deadly Diseases. The former CEO, Steve Jobs
provided a clear constancy of purpose to Apple's plan, products, and services. His goal from the
foundation was simple yet towering; he aimed to change the world. The driving force behind
Apple in its beginning was to revolutionize the computer industry and shape a new technological
world. Before Apple, few had attempted to bring the computer from the office and into the home.
This continuing idea that technology can and will help to improve society's lifestyle was central
to success that Apple has created.

While Goetsch describes the pressure on executives to produce short-term profits as

unavoidable, Steve Jobs had a different approach. "A lot of companies have chosen to downsize,
and maybe that was the right thing for them. We chose a different path. Our belief was that if we
kept putting great products in front of customers, they would continue to open their wallets."
(inc. website, 2018). This approach of focusing on quality in their products and services would
lead to unimaginable profits and a record setting stock valuation for Apple's investors.

In terms of continuity of management and the investment Apple makes in its teams, the company
boasts a strong and dedicated collection of individuals. Amongst the team of Senior Vice
Presidents working in Hardware Design, Internet Software and Services, iOS design, Industrial
Design, Worldwide Marketing, Operations and its CFO, the shortest serving member has been
with the company since 1999, the longest since 1989. This team of managers has provided a
consistent and constant focus towards creating quality, both in its products and within its offices.

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 CHAPTER 4: FINDINGS AND CONCLUSIONS
In summary, it is clear that Apple did not apply Dr. Deming’s steps or any of his fourteen points
in a textbook fashion; yet, it serves as a very good example for focusing on quality first in today's
technology industry. It has achieved the same result of Dr. Deming’s expectation for any
organization’s improvement process. Moreover, Steve Job's had his own strategies for TQM and
excellence which closely mirror those of Dr. Deming’s. He once stated, “Be a yardstick of
quality. Some people aren’t used to an environment where excellence is expected.” (Puckett,
2014).

Even though he may not have been speaking of “quality” in the textbook sense of TQM, the end
result of those who listen to his words is the same. Even after Apple’s CEO Steve Jobs passed
away in Fall 2011, the company continues to thrive against its competitors. With record breaking
stock valuations and new products and services such as the new iPad, iBooks Author, the App
Store and software development kits, Apple continues its legacy of continuous improvement.
They have changed the way companies and individuals conduct business through an approach
focused on quality first.

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 BIBLIOGRAPHY
https://www.essaysauce.com/management-essays/advantages-disadvantages-of-quality-
management/

PanelWorkshopTutorialDetails_ASEM_2018_359_0730023652.pdf

https://smallbusiness.chron.com/advantages-disadvantages-total-quality-management-strategies-
22160.html

https://www.britannica.com/topic/Apple-Inc

https://en.wikipedia.org/wiki/Apple_Inc.

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