To answer the questions in this exercise, you will need to download Dell, Inc.’s 2005 Form 10-K at www.dell.com/downloads/global/corporate/sec/10k-fy05.pdf. You can view this document on your computer screen; you do not need to print this document to answer the questions.

Required:
1. What is Dell’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
2. What business risks does Dell face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks?
3. How has the Sarbanes-Oxley Act of 2002 explicitly affected the disclosures contained in Dell’s 10-K report?
4. Is Dell a merchandiser or a manufacturer? What information contained in the 10-K supports your answer?
5. What are some examples of direct and indirect inventoriable costs for Dell? Why has Dell’s gross margin (in dollars) steadily increased from 2003 to 2005, yet the gross margin as a percent of net revenue has only increased slightly?
6. What is the inventory balance on Dell’s January 28, 2005 balance sheet? Why the inventory balance is so small compared to the other current asset balances? What competitive advantage does Dell derive from its low inventory levels? Page 27 of Dell’s 10-K reports a figure called the cash conversion cycle. The cash conversion cycle for Dell has consistently been negative. Is this a good sign for Dell or a bad sign? Why?
7. Describe some of the various types of operating expenses incurred by Dell. Why are these expenses treated as period costs?
8. List four different cost objects for Dell. For each cost object, mention one example of a direct cost and an indirect cost.