Microsoft Corporation and Its Cost Accounting Research Proposal

Pages: 6 (1744 words)  ·  Style: APA  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Education - Computers

Microsoft (NASDAQ: MSFT) is a major global publisher of software, a major video game hardware manufacturer. The company also has a services function as well. Microsoft markets its operating systems to computer manufacturers and its software to the corporate, institutional and consumer markets. Microsoft is a dominant player in many of its key markets, enjoying a monopoly or near monopoly with a wide range of products. The major divisions of Microsoft are Client, which is responsible for technical architecture such as Windows. Competitors in this segment include Apple, Hewlett-Packard, IBM, Mozilla and Sun Microsystems. The Servers and Tools segment markets servers and related products and services, including storage management solutions and security software. Competitors include HP, IBM, Sun Microsystems, Novell, Oracle, Adobe and many others. Microsoft also competes in Online Services, including the MSN portal, e-mail and instant messaging. Competitors in this segment include AOL, Google and Yahoo! The fourth major division is the Business Division, which markets office software, in competition with Apple, IBM, Novell, Oracle, Red Hat and Sun Microsystems. The fifth major division is Entertainment and Devices, which includes the Xbox, digital music and various hardware products. Major competitors in this segment are Sony and Nintendo. All told, Microsoft's revenue totaled $60.42 billion in fiscal 2008, and it recorded a net income of $17.681 billion.Download full
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TOPIC: Research Proposal on Microsoft Corporation and Its Cost Accounting Assignment

The company began life as Micro-soft, a small company that wrote code for the Altair microcomputer in 1975. By 1980, the company was developing languages for IBM, when chance led them to the opportunity to develop an operating system for the company. Further software developments in this period included the company's first word processing software. By 1984, Microsoft was the leading developer of applications for Apple, and revenues had reached $100 million. This was followed by the development of the Windows operating system, which was supported by a wide range of manufacturers, but neither Apple nor IBM. In 1986 the company established its corporate campus in Redmond, WA and set the stage for long-lasting strong growth with an IPO. In 1990, the company became the first software producers to hit the $1 billion mark in revenues. The company has continued rapid growth since then, expanding on previous businesses, achieving dominance in operating systems, and launching its video game endeavor.

The Industry

The software industry is characterized by short product cycles, high development costs and non-traditional distribution channels. The industry is technology-driven, existing in a cycle in which the software both drives the technological advancements and is driven by them. Most major segments of the industry are characterized by a high level of competitive intensity. Only a handful of major rivals exist, and there are significant barriers to entry and exit. High switching costs in terms of technology overhaul and skills acquisition contribute to relatively strong brand loyalty. For firms operating within the industry, profit margins are high, indicating a degree of oligopolistic practice.

Typically, Microsoft is the dominant player in many of its industry sectors. In operating systems and office software in particular, Microsoft has attained a dominant status that has at times approximated a monopoly. In fact, the firm has staked a position of cost leadership without offering low cost products. In other markets, such as servers, online content or video games, Microsoft is a strong competitor but not necessarily the market leader. In most of these markets, they also adopt a cost leadership strategy but leverage the oligopolistic nature of these markets and Microsoft's own bundle of complementary packages in order to gain market share while maintaining substantial gross margins.


As a large multinational corporation operating in intensely competitive industries, Microsoft faces a wide range of challenges. One ongoing issue is the potential for mergers and acquisitions within the industry. In early 2008, Microsoft put forth a bid to purchase Yahoo!, a competitor in the online services business. Other competitors have also discussed mergers in order to build critical mass in highly competitive sectors. Merger and acquisitions also represent another key concern for Microsoft - antitrust legislation. The Department of Justice has thus far rejected overtures to break up Microsoft, but the risk remains, particularly in light of the company's propensity to bundle its software with its operating system.

Microsoft faces other challenges as well. Its dominant position makes the company a target for both social criticism and virus attacks targeted at its customers. Both of these can compromise the firm's public image and operating effectiveness. Another challenge for the company is to improve its intra-corporate coordination. At this point, Microsoft has grown so large that it is difficult for its divisions to come together to work on projects. This results in lost opportunity for efficiency and knowledge-sharing. There is a sentiment among market observers that the company may be too big to operate in some of its fast-paced, high-technology industries against more nimble competitors.

Potential Ethical Situation

One of the potential impacts stemming from Microsoft's size and structure is that of financial scandal. Given the number of controllers, managers and other accounting personnel, oversight can be difficult. Accounting or other financial scandals can, depending on the size and scope, erode shareholder value, damage the firm's reputation or result in unplanned executive turnover. In response to the multiple ethical crises of the early 00s and the subsequent passage of the Sarbanes-Oxley Act, Microsoft made improvements to its corporate governance program in order to ward off the potentiality of any such scandal. It is recommended that Microsoft continue to make improvements to its Board of Directors and its system of corporate governance. Moreover, the corporate culture must incorporate a strong ethics component. This will help to mitigate the risk of financial scandal at Microsoft.

Impact of Increased Sales

Increased sales would not impact Microsoft's pricing strategy, but would decrease its market potential. The pricing strategy would not be affected for a couple of reasons. One is that Microsoft is a price maker. Because Microsoft products are often the default in their field, or the industry standard, demand is relatively inelastic. In the past three years, Microsoft's gross margins have hovered in the 80% range, indicating that Microsoft has considerable pricing power over buyers. As Microsoft approaches monopolistic stature, its behavior in respect to pricing approaches that of monopolies. Thus, Microsoft is unlikely to change its price in response to shifts in demand, particularly upward shifts. However, increasing sales does decrease Microsoft's market potential. In many segments, such as home and business computing, Western markets are relatively saturated. This means that new sales growth reduces future potential sales growth, all other things being equal. In order for Microsoft to grow sales but not decrease its market potential, it would need to develop potential new markets. The company has for the past several years developed new markets, in online businesses and video games, for example.


Overall, Microsoft is a very strong company. Their financial performance has been exemplary and they have developed a leadership position in most of their key businesses. Their operating environment, however, is marked by intense competition and rapid technological change. As a result the company faces numerous challenges, against which its size helps it to defend. However, this size can be burdensome. It represents a decrease in corporate mobility in an industry where this is a prized corporate attribute. Moreover, the size opens up several key risks for Microsoft, including increased risk of financial scandal as governance mechanisms are stretched thin.


It is recommended therefore that Microsoft address the issue of governance both at the corporate level and also at the functional accounting level. The company should continue to improve its governance mechanisms, including improving the financial competence of its Board of Directors. Moreover, a corporate culture that strongly discourages unethical behavior must be cultivated. In past, Microsoft staff would be able to exercise their options and become rich; today's more challenging environment may see those options expire worthless. Such a situation encourages fraud, as evidenced by the Enron case. Thus, another recommendation would be for Microsoft to reduce the use of equity-based compensation packages.

At the operational level, Microsoft can take several other steps. The firm's cost accounting should be subject to regular audit, to ensure proper reporting of expenses. One of the main types of accounting fraud is hiding losses so that the bottom line meets Wall Street's expectations. Microsoft should establish an oversight division to monitor the accounting practices, especially those concerning offshore entities and foreign subsidiaries. Ultimately, the CFO and CEO are required to sign off on the financial statements and will therefore be held legally responsible for their accuracy. Therefore it is imperative that a control mechanism to avoid financial scandal be built to oversee the company's multitude of subsidiaries, operations and projects.

In terms of other issues, Microsoft is a well-performing company. Strategic mergers and acquisitions are difficult at their level of operation. The company must, however, continue to foster its culture of innovation so that they can maintain their position of technological leadership. Microsoft can fend off competitors by… [END OF PREVIEW] . . . READ MORE

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How to Cite "Microsoft Corporation and Its Cost Accounting" Research Proposal in a Bibliography:

APA Style

Microsoft Corporation and Its Cost Accounting.  (2008, December 8).  Retrieved January 18, 2022, from

MLA Format

"Microsoft Corporation and Its Cost Accounting."  8 December 2008.  Web.  18 January 2022. <>.

Chicago Style

"Microsoft Corporation and Its Cost Accounting."  December 8, 2008.  Accessed January 18, 2022.