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Bus 630 Managerial Accounting Dell Inc






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Bus 630 Managerial Accounting Dell Inc.
Dell Inc.
Managerial Accounting
BUS 630
Dell Inc.
Dell, a Delaware corporation, was founded in 1984 by Michael Dell on a
simple concept: by selling computer systems directly to customers, Dell
could best understand their needs and efficiently provide the most
effective computing solutions to meet those needs (Dell, 2005, p. 1). Dell
Inc., with fiscal 2011 net revenue of $61.5 billion, is a premier provider of
products and services worldwide that enable customers to build their
information-technology and Internet infrastructures (Yahoo Finance,
2012). Dell offers a broad range of enterprise systems (servers, storage,
workstations, and networking products), client systems (notebook and
desktop computer systems), printing and imaging systems, software and
peripherals, and global services. During calendar 2004, Dell was the
number one supplier of personal computer systems worldwide as well as
in the United States. Dell’s global market leadership is the result of a
persistent focus on delivering the best possible customer experience by
selling products and services directly to customers (Dell, 2005, p. 1).
By selling products directly to the customer, Dell has developed a
marketplace niche and strategy for itself that has enabled it to remain
relevant and successful. Dell’s business strategy combines its direct
customer model with a highly efficient manufacturing and supply chain
management organization and an emphasis on standards-based
technologies. This strategy enables Dell to provide customers with
superior value; high-quality, relevant technology; customized systems;
superior service and support; and products and services that are easy to
buy and use (Dell, 2005, p. 1). Part of Dell’s business strategy is that
they maintain a direct intimate relationship with the customer as Dell had
determined that this is the most efficient path to effectively satisfy the
customer’s needs. This direct customer relationship, also referred to as
Dell’s “direct business model,” (Dell, 2005, p. 1) demonstrates that Dell’s

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highest priority is their relationship with their customers. Other areas of
high priority for Dell include the customers ability to purchase custom-
built products and custom-tailored services, Dell’s ability to be the low-
cost leader, Dell’s success in providing a single point of accountability for
its customers and Dell’s belief that Non-proprietary standards-based
technologies deliver the best value to customers (Dell, 2005, p. 1). All of
these priorities are incorporated into Dell’s over-all strategy for success
in the marketplace.
There are many factors that affect Dell’s business and the results of its
operations, some of which are beyond Dell’s control that may cause the
actual results of Dell’s operations in future periods to differ materially
from those currently expected or desired (Dell, 2005, p. 7). The following
are some of the areas that could affect Dell’s business; general
economic, business, or industry conditions may result in a decrease in
net revenue, Dell’s business is extremely competitive and no assurances
can be offered that Dell can maintain its competitive advantage, a
substantial portion of Dell’s net revenue is dependent upon international
sales, which are subject to risks and uncertainties, Dell’s overall
profitability may not meet expectations if its product, customer, and
geographic mix is substantially different than anticipated, Dell’s net
revenue may not meet expectations if it is unable to accurately predict
the effect of seasonality on its business, Infrastructure failures could
have a material adverse effect on Dell’s business, A failure on the part of
Dell to effectively manage a product transition will directly affect the
demand for Dell’s products and the profitability of Dell’s operations,
disruptions in component availability could unfavorably affect Dell’s
performance and Dell’s reliance on suppliers creates risks and
uncertainties (Dell, 2005, p. 7,8,9). In an effort to reduce these risks, it is
imperative that Dell constantly engages in activities that will help to
mitigate some of the risks that they face. For example, Dell must always
be in research and development mode in order to continue to improve
and develop products and services that will continue to engage the
consumer and remain ahead of the competition.
The Sarbanes-Oxley Act (SOX) was passed by U.S. Congress in 2002
to protect investors from the possibility of fraudulent accounting activities
by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms
to improve financial disclosures from corporations and prevent
accounting fraud. SOX was enacted in response to the accounting
scandals in the early 2000s. Scandals such as Enron, Tyco, and

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WorldCom shook investor confidence in financial statements and
required an overhaul of regulatory standards (Investopedia- SOX, 2012).
This act forces companies to go through proper reporting stages; Dell’s
Form 10-K lists all of the proper consolidated financial statements and
financial statement schedule as well as internal control over financial
reporting. All audits of these statements are in accordance with the
standards of the Public Company Accounting Oversight Board (Dell,
2005, p. 34).
Within Dell’s 2005 Form 10-K, the company Describes their Business as
“Dell Inc., a Delaware corporation, and its consolidated subsidiaries
(collectively referred to as “Dell”) designs, develops, manufactures,
markets, sells, and supports a wide range of computer systems and
services that are customized to customer requirements. These include
enterprise systems (servers, storage, workstations, and networking
products), client systems (notebook and desktop computer systems),
printing and imaging systems, software and peripherals, and global
services. Dell markets and sells its products and services directly to its
customers, which include large corporate, government, healthcare, and
education accounts, as well as small-to-medium businesses and
individual customers” (Dell, 2005, p. 40). With this description in mind,
Dell would be considered to be a manufacturer as opposed to a
merchandiser since they manufacture their own products. The exception
to this is that Dell does purchases some of its products from third-party
original equipment manufacturers and then resells them under the Dell
name (Dell, 2005, p.5).
Dell has both direct and indirect inventorial cost; some examples of
direct costs would items that were manufactured by Dell such as laptops,
printers, PC’s and some examples of indirect costs are those costs
which are associated with operations and could include stock, technical
support, warranties and other forms of more non-tangible cost related
Dell’s gross margin increased at an impressive and steady rate while the
gross margin as a percentage of net revenue only increased slightly. Dell
offered the following information in an effort to explain this;
“Consolidated net revenue increased 19% to $49.2 billion during fiscal
2005, with Dell’s strong international performance being a key driver of
this growth even as the company expanded its number one position in
the U.S. During fiscal 2005, component costs continued to decline at a

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