Dell Computer Corporation
Planning Materiality and Tolerable Misstatement
Determine planning materiality for an audit client
Allocate planning materiality to financial statement elements
Provide support for your materiality decisions
Dell Computer Corporation designs, develops, manufactures, markets, services, and
supports a wide range of computer systems, including desktops, notebooks, work-
stations, and network servers. The company also markets software, computer peripherals,
and post-sale service and support programs. The company's products are sold in more
than 170 countries and it has manufacturing facilities in Round Rock, Texas; Limerick,
Ireland; and Penang, Malaysia. Net revenue for fiscal 1998 was $12.3 billion and net
income was $944 million. Dell generally experiences stronger revenues in the second and
third fiscal-year quarters.
The company's business strategy is to deliver the best customer experience through
direct, comprehensive customer relationships, cooperative research and development with
technology partners, custom-built computer systems, and service and support programs
tailored to customer needs. The direct customer approach eliminates the need to support
an extensive network of wholesale and retail dealers. This direct customer focus allows
the company to reduce the cost of its products by avoiding typical dealer markups and
avoiding higher inventory costs associated with the wholesale/ retail channel. In addition,
direct customer contact allows the Company to maintain, monitor, and update a database
of information about customers and their current and future product and service needs,
which can be used to shape future product and service programs. The company's
partnerships with leading-edge technology companies create efficient procurement,
manufacturing, and distribution processes that allow Dell to bring relevant technology to
its customers faster and more competitively priced than many of its competitors.
Dell common stock is traded on the NASDAQ national market, and Dell is required to
have an annual audit pursuant with the 1934 Securities and Exchange Act. As of the close
of business on September 8, 1998, Dell had 1,273,510,968 shares of common stock
outstanding with a trading price of $59 11/16.
This case was prepared by Frank A. Buckless, Ph.D. and Mark S. Beasley, Ph.D. of North Carolina State University and
Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, and modified by J. Christopher
Westland PhD CPA.
The background information about Dell Computer Corporation was taken from Dell Computer
Corporation's February 1, 1998, Form 10-K and August 2, 1998, Form 10-Q filed with the Securities and Exchange
The case is intended as a basis for class discussion. It is not intended to illustrate either effective or
ineffective handling of an administrative situation.