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1. BUS 630 Week 1 DQ 2 Kranbrack Corporation
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M.K. Gallant is president of Kranbrack Corporation,
a company whose stock is traded on a national
exchange. In a meeting with investment analysts at
the beginning of the year, Gallant had predicted
that the company’s earnings would grow by 20%
this year. Unfortunately, sales have been less than
expected for the year, and Gallant concluded with
two weeks of the end of the fiscal year that it
would impossible to ultimately report an increase
in earning as large as predicted unless some drastic
action was taken. Accordingly, Gallant has ordered
that wherever possible, expenditures should be
postponed to the new year – including canceling or
postponing orders with suppliers, delaying planned

2. maintenance and training, and cutting back on end-
of-the-year advertising and travel. Additionally,
Gallant ordered the company’s controller to
carefully scrutinize all costs that are currently
classified as period costs and reclassify as many as
possible as product costs. The company is expected
to have substantial inventories of work in process
and finished goods at the end of the year.
Comment on the following questions. Respond to
at least two of your fellow students’ postings.
• Why would reclassifying period costs as
product costs increase this period’s reported
earnings?
• Do you believe Gallant’s actions are ethical?
Why or why not?
Assgnt. The questions in this exercise are based
on Dell, Inc. To answer the questions, you will need
to download Dell’s 2005 Form 10-K. You do not
need to print this document in order to answer the
questions.
• 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

3. value proposition? What evidence supports
your conclusion?
• 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? (Hint: Focus on pages 7-10
of the 10-K.)
• How as the Sarbanes-Oxley Act of 2002
explicitly affected the disclosures contained in
Dell’s 10-K report? (Hint: Focus on pages 34-35,
59, and 76-78.)
• Is Dell a merchandiser or a manufacturer?
What information contained in the 10-K
supports your answer?
• 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
percentage of net revenue only increased
slightly?
• What is the inventory balance on Dell’s January
28, 2005 balance sheet? Why is the inventory

4. balance 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 crash conversion cycle. The cash conversion
cycle for Dell has consistently been negative. Is
this a good sign for Dell or a bad sign? Why?
• Describe some of the various types of
operating expenses incurred by Dell. Why are
these expenses treated as period costs?
• List four different cost objects for Dell. For each
cost object, mention one example of a direct
cost and an indirect cost.