Managing finances for strategic managers Essay

Managing finances for strategic managers

Task 1

            The Apple Inc. is an American Multinational Corporation that designs and manufactures the consumer electronics and the closely related software.  It produces hardware products such as Macintosh line of personal computers, the ipod line of the portable medial players and the iphone.  The computer produces software products such as macos x operating system, I Tunes media browser, i-life suite of multimedia and the creativity software.  It has over 200 retail stores in the six countries and the online store where the hardware and software products are sold.

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            The company was established in 1976 in Cupertino California.  It was formerly known as the Apple computer Inc.  It has over 20,000 permanent and temporary workers worldwide and in the year 2007 the company had annual sales of US $24.01 billion.

a)        Cost refers to the amount of expenditure that is incurred or a given thing by an individual or an organization.  The amount of money that is spent on a given thing depends on factors such as the nature of the industry or the industry and the context in which it is used.

The cost concepts involve fixed costs, variable cost and the total costs.  Direct costs refer to the costs that are assigned to specifically given or particular services. Indirect costs are the costs that are used to enhance the functioning of an organization as a whole, but can’t be directly assigned to any services.  The total costs refers to the sum of all costs such as the direct and the direct costs that are associated with a given or a particular service.  The fixed cost is the cost that does not change when there are increases or decreases in the amount of services that is provided for example the rent.

            Unit cost is the cost that is incurred as a result of producing services given for an organization.   Variable cost is the cost that either increases or decreases when the amount of service provided for example the salary either increases or decreases.  The sunk cost refers to the cost that is already incurred for example the cost of the previously purchased computer system.  Marginal cost is the cost that is provided by an organization.  Avoidable is another cost concept that shows the amount of expense that would occur if a particular decision has been implemented for example if a clerk is laid off.  Lifestyle cost is the cost that is associated with the ownership of an item such as acquisition, operation and maintenance over the life of the equipment or less the resale value.  Opportunity cost is the benefit that is derived after alternative course of action has been undertaken.  Relevant cost is the cost for a particular problem at hand for example full cost recovery, total cost (

b) The cost concepts and their application in decision making process

            The costs are used by the management of the organization to determine the kind of decisions that should be carried out by those organizations.  The differential costs are used by the organization to make decisions that involve the selection of the alternatives from among a variety of alternatives.  The alternatives have costs or benefits that are compared with the other alternatives, differential cost is the cost that shows the difference between any two alternatives, while the differential revenue is the revenue that is derived when there are differences between two alternatives.

            The management of organization establishes the cost volume relationship using the differential costs so as to find out the engineering application such as the short term decision making applications.  For example a base case where it has alternatives, if the alternatives have lower cost one accepts the alternative by assuming that the non-quantitative factors do not offset the cost advantage.

The company has been experiencing bad and good time in the computer industry.  The development of technology and the evolving computer applications have contributed to a very competitive environment.  The competition in the industry has affected the bargaining power of the supplier, since there are many suppliers of the component parts in the industry.  The manufactures can be in a position to make favorable purchasing agreements that allow the manufacturing costs to be reduced by ensuring that, the competitive pressure on the manufactures makes them to pass on their cost saving to their customers.

            Due to the declining prices of the computer product in the competitive market and the bargaining power of the supplies has been high due to the large number of the computer manufactures.  The management of the company has offered new features and services that give customers loyalty so as to maintain and sustain them.

Task 2

a) Cost control refers to the process that involves monitoring the project costs and their associated resources.  The results of that are derived after carrying out this activity are the recording of project costs and the adjustments to the budgets according to the managements expectations.

            The budget refers to the tool that is used by a corporation to plan its future activities and also used for measuring the performance of the corporate managers against the monetary targets that have been established in the budget.  The management of companies controls their budget progress by predicting the internal facilities program needs for staffing required service levels and the space allocation standards and they also determine the accuracy that is associated with the customer projections and needs and reliability of their information.  The other factors that the managers take into consideration when planning their budges is the stability of the external factors such as the competitors plans to get new products to the market, economic trends on the critical issues such as interest rates or the regulatory action on the environmental issues or the zoning ordinances.  The age of the most valuable equipment such as chillers, compressors or the energy management systems.

            The control theory is a theory that is used to ensure that the company’s activities conform to its plans.

b) The different types of budgets

            Operating budget is the budget that is used to show the daily expenses and the depreciation of an organization, they cover a period of one year.  Capital budgets are the budgets that outline the planned outlays of investment in plant, equipment and the product development and   they cover a period of three, five or more years.  The cash budgets are the budgets that are used to plot the expected cash balances an organization will incur during the forecast period based on the information provided in the operating and the capital budget.  They are prepared on the basis of the finance department and they ensure that cash and credit is available to meet the cash disbursement of an organization.

            The finance budget involves budgets such as cash budget, budgeted balance sheet and the budgeted statement of the cash flows.

The step involved in preparing Budgets

            The first step when one is preparing a budget is reviewing the program and the management achievement and fiscal performance over the financial year ending of a company. It also involves reviewing the objectives achieved by the company, comparing the budget with the actual figures and looking at a number of people that are served in each program.  The cost per unit of service can be achieved through dividing the true cost of each program by dividing with the number of people that are served. The new goals and objectives should be discussed and agreed upon in the preliminary way.  The goals and objectives should fit into each strategic, long range plan so as to help make progress in achieving the missions of an organization.

            The costs that are incurred as a result of starting off a project should be estimated so that they can suit in the organizations objectives.  The program and the financial staff should be included in the discussions of the programmatic costs so that all the resources that are required are put into considerations (

            When preparing the budget one should use the past data so that it can be used to determine some important information for the continuing programs for the organization and also to determine the direction should take when it is carrying out its activities. The preparer of the budget should take into account personal costs as they take about 60 to 70 percent of the non profit total expense budget.  The other costs that should be considered are costs of hiring new staff salaries and wages for the employees, furniture and equipment.

            The organization income as well as its expenses should be considered even though the unpredictable events may influence the fees and contributions that are incurred and earned.  The revenues of the organization can be estimated on the basis of past experience. The revenue and the expense projections should be compared so as to determine whether an organization will incur a deficit, realize a surplus or the organization costs and revenues will have break even accounts in its cost accounting activities.  Large deficits may indicate that the company may become bankrupt while the large surpluses may mean that the organization is not investing much of its revenues in serving the public interest.

            If the expenses are to be reduced one has to determine what each program would cost at the different service levels.  A fixed percent may cut across all of the expense lines although it’s not the most effective way to reduce expenses.

Task 3

a) Cost reduction refers to the process of tracking the trend patterns and the exceptions over a long period of time in a consistent and reliable manner. The scope and practicalities of cost reduction and management for the Apple Computer Company was that the chief executive officer cut the costs of the enterprise software as most of its customers suggested it was good thing to do but it had negative implications on the management as there were reduced earnings from the business.

b) The key areas where Apple Computer Company can reduce cost and implication of these activities

Standardized equipment and software purchases

            The smaller companies may fail to recognize the economic advantages of buying the personal computer from a single source or they may fail to receive the real value of their purchases.  When one changes the vendor from which they purchase their items to a smaller amount that requires less desktop support they can have be a great opportunity because as it can give rise to tremendous savings and also the standardization of the hardware and software can ultimately reduce the information technology labor that can improve on its services.

Restructure remote office processing

  In the high volume transaction one can create a data store and the forward environment for the remote offices when they do not require the total online access to all of the company’s data.  Instead of paying for the constant access to the company’s main network through wide are Network (WAN) then one can pay for a data synchronization and update the process in a batch data link once in a night.  The state farm and companies with the distributed offices may take advantage of this cost reduction method for their organization and it can take place for many years (Sipco, M. 2002)

Systems and business applications redundancy

            As the computer systems grow with time the effect can be that people cannot continue to use the obsolete system when their functionality exists with the newer and the more robust system in the company.  The systems assimilation opportunities can lower the annual license and the maintenance fee and this can lead to the reduction of the information technology support needs.  The charges standardize the company’s approach of handling business application

The Wide Area Network expenses can be reduced significantly or even eliminated by using the internet to process the transaction of the company.  The internet is ideal for the low-volume transactions that do not require immediate response times. Information technology staff the management of the company can assess the appropriate staffing that exists to support the current business needs and the project that require the information technology to support the company’s object.

            Telecommunication costs the company can inspect the data communications costs by determining the competitive pricing and validation of ensuring that the company pays for actually what it has used.  There are instances where the companies fail to cancel the circuits and phone lines that are not needed, this one needs to look for the pager, cell phone, fax, phone cards and data lines so as to ensure that they are in use and are justified to carry out the company’s payments (Sipco, M. 2002).

The Apple Computer Company can increase the sales volume of its products by preparing a budget as it shows how the company can acquire revenue and the number of expenses that the company will incur within a given period of time. It should also carry out extensive research so as to establish the cost reduction methods that can enable the company to compete effectively in the competitive market when there are other companies that are offering the company’s similar services.


Timing of Budget Activity

Who Should Be Involved in the Budget Process?

What Are the Steps in the Budget Process?

Preparing a Monthly Budget

Website accessed on July 2008-07-15

Identify IT influences in key cost areas to help your clients

Sipco, M. 2002

: Michael Sipco

 Website accessed on July 2008-07-15

Core Cost Concepts

 Website accessed on July 2008-07-15

Apple Computer Company History Website accessed on July 2008-07-15

Robert, X. C., 1992. Accidental Empires. Massachusetts: Addison-Wesley,



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