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Accounting for the Intel Pentium Chip Flaw Case Solution

Solution Id Length Case Author Case Publisher
2423 1427 Words (7 Pages) Gregory S. Miller, V.G. Narayanan, Lisa Brem Harvard Business School : 101072
This solution includes: A Word File A Word File

The worst-case scenario for any firm is for its customers and the wider public to distrust its integrity. Intel Corporation, one of the world's top companies with millions of customers, lived through this nightmare in real life. It is the world's largest maker of computer chips, responsible for more than 80% of all personal computer processors. A weakness was discovered in the Pentium processors, which are the chips used by the corporation when mathematical calculations were performed. Even though the mathematical issue only affected a tiny subset of Pentium users, including engineers, bankers, and scientists, the chip affected a large number of users who could not be classified as technical. Users expected a chip that worked well, but the corporation reacted by arguing that perfection was not required.

Following questions are answered in this case study solution

  1. If you were an accountant for Intel, what specifically would be the relevant accounting research question with respect to the Intel Pentium chip flaw?

  2. What constrains Intel's decision about how to account for the Pentium chip flaw?

  3. What do you need to know, estimate, and assume to answer the research question? 

  4. What would you recommend to Intel management with respect to accounting for the Intel Pentium chip flaw? Why?

Case Analysis for Accounting for the Intel Pentium Chip Flaw Case Solution

1. If you were an accountant for Intel, what specifically would be the relevant accounting research question with respect to the Intel Pentium chip flaw?

Intel neglected to admit its mistake while the challenge was only getting started; nonetheless, an apology should be made to the public as a public apology later on. Intel launched a series of marketing initiatives that resulted in significant expenditures to persuade the general public to purchase their goods. The executive said that the issue was caused by a floating error that occurred during the division procedure. The ancient Intel CPU processors used integers to do arithmetic computations inside their programs. Pentium processors were developed by Intel in conjunction with built-in software for floating-point non-integer arithmetic. The difference between the two values was 0.006 percent. As a result, the most important consideration should be whether Intel was effective in complying with the authorities. Practically speaking, Intel did not do sufficient study on the advantages and negative effects of the new chips before putting them into the market, which is unethical and against the law in most jurisdictions. In an ideal world, Intel sales managers would have seemed enthusiastic about bringing the freshly developed invention, that is, the Intel chips, to the market as soon as possible. Intel made the mistake of failing to use efficient criteria to communicate the benefits associated with the new product. It is worth noting that the first stage in doing research is to identify the issue that requires investigation. However, after the analysis and identifications have been completed, we must consider the solution to the addressed difficulty to prevent incurring further costs and losing the consumers' loyalty. Reverse engineering has the potential to study and progress a product, hence reducing the likelihood of the product losing its value.

The Intel Pentium chip defect was a major source of concern for the company. Several critical choices would have had to be made by the accounting team at the corporation for the recalls to be properly accounted for. The most difficult issue to answer was probably how they would account for the expenses in the accounting records. They would have sought to estimate the cost but doing so would have been very difficult. There is no way to predict how many consumers will ask for the component to be changed in advance. It would most certainly take some time to figure out how much the mistake costs. It may take years before the corporation realized how much money it had lost. In addition, the corporation had to decide whether or not it should submit a form 8-K with the Securities and Exchange Commission (SEC). To do this, they would have to assess how large the event was in reality.

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