Hewlett Packard Company’s Cost Accounting Analysis

Executive Summary

The chosen company for financial accounting analysis is Hewlett Packard, American Information Technology Company. It is publicly traded company which specializes in personal computers, notebook computers, servers, network management software’s, printers, digital cameras, calculators and other technology related equipments in form of hardware and software. The company maintains its headquarters in Palo Alto, California, United States.

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The company was started by two young entrepreneurs William Hewlett and David Packard, who graduated from Stanford University in 1934. The Company has humble beginning of first initiation beginning a garage , during Great Depression era for $538/- (Garage) Hewlett Packard was incorporated on August 8, 1947 and went public on November 6, 1957. Hewlett Packard emerged and became recognized overtime, as symbolic founder of Silicon Valley.

The humble beginnings of innovative oscillators in a garage launched a high-tech revolution which is regarded as a legend in Silicon Valley. It is almost like the genesis story inspired in Silicon Valley, trend from Apple to Yahoo to Google; HP has its place of greatness in the sphere. HP emerged out of the vision of two dynamic entrepreneurs not just as accelerating evolution of electronic industry, but also maintained social, organizational and technological which is the trademark for the company. Their vision was acknowledged popularly as the HP Way, with creation of corporate culture and management style, which came up with the approach that respected personal autonomy and stressed corporate decentralization. “HP’s focus on openness, education and endless information swapping became a model for the networked modern Valley. (Jacobson)

Introduction and Overview

The beginning of 21st century marks a new focus area for Hewlett Packard which aims to simplify technology experiences for all its customers, from individual consumers to the largest businesses. It is interesting to see that HP’s portfolio spans from printing, personal computing and IT infrastructure and grows to become one of the largest IT companies. The year 2002, highlights a new direction for HP, when it completes its merger transaction with Compaq Computer Corporation.

In this new position HP has attained the position of the leader, in the global provider pf products, technologies, solutions and services to consumers and businesses. The company’s offerings span IT infrastructure, personal computing and access devices, global services, and imaging and printing. HP has taken brave initiative to stabilize its position in the later part of the decade, by a steady stream of acquisitions influencing the software, personal computing and printing markets, in 2007. HP also achieves remarkable revenue of $100 billion. (HP Timeline, 2008)

HP has steadily risen to the outstanding 11th place, in the Fortune 500 ranking of the leading companies based on performance and revenue. HP enters a new market, and announces its digital entertainment industry strategy, with introduction of wide array f products and partnerships transforming the way people experience music, movies, TV, photographs and digital entertainment. HP. “wobulation” is honored as one of thetop new products by Popular Science Magazine.

This has been the revolutionary projection technology which displays without changing the light modulator, increasing pixels or increasing the cost of the projector. It dominates as leading partner in the innovative and dynamic IT industry, keeping pace with the change. (HP Timeline, 2008)

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HP has also expanded its geographic area and secures three major managed services deals in telecommunications, manufacturing and financial services industries, which reflects its strong value in proposition for high tech, low cost and best assured customer experience. In year 2003, HP unveils Adaptive Enterprise strategy to help businesses manage change and get more from their IT investments. The company unveils new services, software, solutions and enterprise reference architecture designed to help companies measure, architect and manage change by creating a tighter linkage between business and IT. HP also announces a strategy to radically simplify technology to help people “enjoy more”. This move makes HP a leader in imaging, printing and home computing entering confidently into the fast-growing digital photography and entertainment markets. (HP Timeline, 2008)

As part of the strategy, HP unveils more than 100 consumer products – its largest consumer product rollout to date. Included in the rollout is the world’s first eight-ink consumer photo printer, the HP Photosmart 7960. HP announces a worldwide initiative for the small and medium-sized business (SMB) market, one of the fastest-growing and most important segments in the global economy. The Smart Office Initiative provides tailored support services, local expertise, and products to help SMBs manage their unique business needs. As part of the launch, HP announces more than 100 different products, solutions and services.

The significance of year 2006, is a milestone in the organizational, financial and the enterprise related set up of the Company. In September, CEO and President Mark Hurd is named Chairman of the Board.HP also achieves the milestone target of shipping its 100 millionth LaserJet printer. HP shipped its first LaserJet printer in 1984. In October, HP acquires VoodooPC, a high-end gaming PC provider. HP acquires Mercury Interactive Corp. in November, HP’s largest software acquisition to date, to create a new organization for business technology optimization (BTO).

It maintains the top twenty target by remaining at 14th rank in the Fortune 500 companies ranking. HP maintains it’s outstanding revenue: $91.6 billion and employs: 156,000 people worldwide from Asia to Europe and America. There is substantial increase in revenue in just one year , in 2007 HP shows Revenue of $104.3 billion with Employees reaching worldwide figure of 172,000 people of diverse cultures and ethnic backgrounds. (HP Timeline, 2008)

Hewlett Packard has been an innovative company which has reined the IT industry with adopting dynamic changes within the structure and the organization of the company over time. It is ready to meet the challenges of the new decade. The new focus of the new age HP is in extending its strategy of establishing research centers in growing economies, HP opens a research lab in St. Petersburg, Russia. HP Labs Russia is the third facility that the company has opened in the past five years. HP Labs China began operations in Beijing in 2005, and HP Labs India opened in Bangalore in 2002. HP Labs also has facilities in Bristol, U.K. (1984), Haifa, Israel (1994) and Tokyo, Japan (1990). Its headquarters site is in Palo Alto.

HP has also taken an innovative leadership role and achieves its goal of recycling one billion pounds of electronics. This year marks the 20th anniversary of the inception of HP recycling programs, which now operate in more than 40 countries, regions and territories. HP is also involved in licensing its technology for a drug delivery skin patch that enables painless, controlled release of drugs. Developed as a way to repurpose its inkjet technology, the technology in the skin patch is similar to that employed in HP’s patented process for its inkjet cartridges.

Throughout 2007, a series of acquisitions expands HP’s influence in the printing, personal computing and software markets. HP acquires:

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  • Tabblo Inc., to make printing from the web easier and more convenient;
  • Logoworks, to provide small businesses with access to professional design solutions at a fraction of market cost;
  • SPI Dynamics, Inc., for application security assessment software and services;
  • Neoware Inc., a provider of thin client computing and virtualization solutions;
  • MacDermid ColorSpan Inc., a manufacturer of wide-format digital inkjet printers;
  • Opsware, a market-leading data center automation software company;
  • EYP Mission Critical Facilities Inc., a global consulting company for large-scale data centers. (HP Timeline, 2008).

Hewlett –Packard is known for its reputation as an honorable and ethical company, which has guarded and secured its position with long term service in innovative field of technology. In 2006, Hewlett-Packard had an ethical issue regarding leaking information from a Board Member that disclosed information outside of the company. Additionally, they use many subcontractors and consultants and how they are able to control their work legally and ethically. Due to this, should they ethically monitor everything that the employees access including their emails? Is that invading their right of privacy? Hewlett-Packard guards the confidentiality and the privacy of its products and services zealously.

Journal Entries

Hewlett-Packard is a very strong and sound company, always known to manage its financial commitments with insightful analytical approach. Hewlett Packard (HP) uses an activity-based costing system. The advantage for an activity based costing system provides HP a more cost effective way to reduce the cost to produce new products. HP would be able to divide the cost pool into several groups of overhead by activity instead as a whole overhead charge when it would give larger amounts in activities to design one product and over value the cost. This way HP only charges overhead to the percentage of use for that activity or product design/manufacture. Activity based budgeting would focus on all cost to one activity to produce, sell, and service a product including all its related overhead costs. HP can focus its activities on:

Total quality control – This would focus on budgeting for all the cost to design and manufacture products.

Market Research – This budget would focus on delivering products for the client through surveys and advertising.

Purchasing – cost drivers budget for cost of products to manufacture products.

The budgeting criterion for HP is also very promising and flexible, the company diversifies its budget into three categories. These are :

Revenue budget – This of course all company needs to find out the selling price, units sold and total revenue budget for the year.

Manufacturing overhead costs budget – This would do a sum of all the indirect cost of manufacturing budget for the year

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Customer-service budget – Hewlett-Packard have to keep up customer service and product warranty expenses. It is important for HP to budget for those expenses for the year.

An analysis of the flexible budget, based on the cost budget or analysis factors can help determine the cost drivers which can guide the allocation of resources within as well outside the company various portfolios. Hewlett-Packard’s cost drivers are associated with technology services, consulting solutions for design and implementation, and outsourcing services for customers’ business process.

Costs are associated with: Materials to manufacture computer, IT services, and products from vendors and suppliers

Overhead cost – real estate (high real estate for each location and Information Technology)

Business cost for each location for sales professional and marketing.

The sales, marketing, and distribution from physical and internet stores, retail and independent distributors ; manufacturing and materials of components, configuring, and computer systems and accessories and domestic and international operations for sales, research and development, marketing strategies, and overhead costs of each corporation or operational unit.

All these factors combined affects the pricing and the revenues of the company in the light of the future. HP provides servers, storage, software, computers and IT services worldwide. HP’s industry focuses on communication, media and entertainment, manufacturing and distributions. So the costs are in relation to the cost associated with technology services for the delivery of product and warranty, consulting for government and private companies for applications and packages, and outsourcing globally. The indirect costs for HP would be the staffing cost to maintain and support the server, rent and utilities, research and developing and implementing them.

HP provides service at their data centers to keep important client’s technology information. HP has a high real estate space to have a back up system for these clients. Keeping utilities for these building are high to keep it operating and cooling systems so they computer systems don’t overheat. Then there are management costs to decide on expenses to purchase a machine or develop a technological application. Also the administration and mainstream IT cost of everyday operations that is not directly related to the products and services.

The comprehensive evaluation and analysis of the cot driving factors in terms of product, manufacturing, real-estate, manufacturing and distribution takes in to account both the direct sots and the indirect costs. The indirect costs for HP would be the staffing cost to maintain and support the server, rent and utilities, research and developing and implementing them. HP provides service at their data centers to keep important client’s technology information. HP has a high real estate space to have a back up system for these clients. Keeping utilities for these building are high to keep it operating and cooling systems so they computer systems don’t overheat.

Then there are management costs to decide on expenses to purchase a machine or develop a technological application. Also the administration and mainstream IT cost of everyday operations that is not directly related to the products and services. (HP, 2007)

An increase in revenue steadily, would empower the organization to spend more in production and manufacturing, with leverage to maintain higher level of staff in better locations which may be profitable globally. This would enhance HP’s cost drivers and give a boost to the potential market. It would give better control over direct costs and indirect costs. This would give more powerful strategic advantage to explore and invest in new enterprise with the changing world scenario.

Conclusion and Recommendations

HP has grown to be one of the world’s largest IT companies, with focuses on global citizenship. There is commitment is to their product, service and innovation for decades. They have steadily improved in their world rankings in Fortune 500 companies and with improved revenues and capability of growth in employment worldwide. The impact of the vision of the two legendary founders Bill Hewlett and Dave Packard, have been the light behind the success. It is an important part of their heritage and these values , are built on solid foundation which focuses on strong corporate accountability and governance, with a commitment to environmental responsibility and active investment in communities in which they do business.

Hewlett- Packard the vision is to be innovative and unparalleled, with ability to drive simplicity, innovate and influence industry actions in a way that is good for customers, good for business and good for planet. The outstanding progress demonstrates that HP can cut costs and increase revenues at the same time. This is very promising for the success and growth of the company. HP moves and mobilizes towards action which is growth oriented and environmentally viable. Success does not make them complacent, and they are on their toes never underestimating the claws of competition.

Their future vision rests on the great growth opportunities provided by the explosion of digital content and addresses their $1.2 trillion market opportunity. They have a history, a portfolio and a set of unmatched capabilities which makes them a leader in the industry. HP invests in the right people and infrastructure which is the key to their growth and expansion. They are always challenging their potential to leverage their scale and reduce costs to improve their operating performance. They are clear in their vision to make a statement which emphasizes on one goal: “to make HP the partner of choice for our customers, the investment of choice for our stockholders and the employer of choice for our employees”Mark V. Hurd, Chairman and CEO, Hewlett-Packard. (HP, 2007)

Work Cited

HP Reports Fourth Quarter 2007 Results: Financial News – Yahoo! Finance.

HP, Annual Report 2007-HP. 2008. Web.

HP Timeline, HP timeline — 1960s. 2008. Web.

Jacobson, David Founding Fathers. 2008. Web.

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StudyCorgi. (2021, August 26). Hewlett Packard Company’s Cost Accounting Analysis. Retrieved from https://studycorgi.com/hewlett-packard-companys-cost-accounting-analysis/

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"Hewlett Packard Company’s Cost Accounting Analysis." StudyCorgi, 26 Aug. 2021, studycorgi.com/hewlett-packard-companys-cost-accounting-analysis/.

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