Question

Select a public (i.e. one that publishes its financial information) manufacturing company (e.g. APPLE CO. LTD, computer and smartphones and tablets manufacturing company)

and become familiar with its products. Describe the company, its products, and the specific manufacturing costs it incurs. Categorize each cost into the three manufacturing cost categories and state if the costs are variable, fixed, or mixed. Explain how you came to your conclusions.

Answer 1

Apple Inc.

Apple Inc. is an American multinational technology company headquartered at California and they are one of the popular and major manufacture of consumer electronics like Mobile phones and Laptops and other computer software. Despite the iPhone being one of the most sought after products in the world, as of 2019, Apple was third in market share for smartphones, behind Samsung and Huawei. They controls the 14.5 % of the total market share and when it comes to the profit part they are the leading with 66% industry profit and 32% revenue in 2019.

It seems that the company must be making a sizable markup if it's the leader in profits but third in sales. Let's how much it costs to make this iconic product. Here we will take the iphone 11 Max pro for see the cost breakup.

Typically there are 4 types of cost which will form part of an iphone.

1.Material Cost - The raw material used for the production.an average cost for the same is mentioned below.

Screen - 66$

Battery - 10$

Camera - 74$

Processor and Memory - 160$

Sensor,Holding material Assembly and Other - 180$

2.Labour Charges -

The cost for assembling is the major labour cost and the assembling work is mainly held in China. The average cost incurred is 3.15$ per hour in china where as in US its 7.25$ Per hour.Labor costs are still a small part of the overall cost structure at between 2% and 5% of sales price.

R&D (engineering and development) and Sales, General and Administrative (e.g.. Marketing) costs are not part of this cost structure. They are considered fixed costs and are not allocated to individual units of production.

3.Transporataion and warehousing - This is the cost to transport and store the product before sale. This is paid to shipping companies and warehousing.

4.Warranty Expenses - Such costs are incurred by the company when there is any defects in the products which are returned by the customers. It can be by way of replacement of new product or parts.

Manufacturing costs for the iPhone are likely to be much higher than comparable devices. This is partly because of the design of the product and partly because of the quality testing needed.The iPhone manufacturing costs are likely to be twice or three times the average as compared to other devices.

The R&D (engineering and development) and Sales, General and Administrative (e.g.. Marketing) costs are not part of this cost structure. They are considered fixed costs and are not allocated to individual units of production.

The Material,Labour,Transportation and warehousing are considered as variable costs if such costs are changes according to the number of units produced, But sometimes it can be fixed(for eg:The warehousing charges will be same if there rimso-50 units as well as 100000 units).The warranty expense can be treated as a provision by comparing the expenses from the t years.But it can be treated as variable as well.

Variable costs are the costs which changes according to the changes in units of production, where as fixed costs will not change to a limit and if the limit exceeds the fixed costs also changes. Where as in mixed costs we find both variable as well as fixed costs.So by analyzing the above we will be able to identify the major costs and the types of costs

Apple is a very successful company and its customer pays a very high amount to buy its premium products. They are maintaining a high brand value as compared to any other brands.