MBA502 - Part 1 Milestone 2

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1 Part One, Milestone Two Southern New Hampshire University MBA 502: Economics for Business Sonja Wilson December 11, 2022
2 Production and Costs of the Apple iPhone Apple Incorporated makes the iPhone which dominates the smartphone market. The cost to produce the iPhone is around $570, and that includes the labor costs associated. The iPhone is then sold for between about $1,000 and $1500 depending on the specific model and storage options. The costs that go into producing the iPhone come from many areas as discussed below. (Brown, 2022) Inputs and Costs There are many inputs that are associated with producing the iPhone, and they can be fixed or variable costs. Variable costs for the iPhone are labor and the components used to produce them. Fixed costs for the iPhone are the equipment and machinery used in production. While Apple assembles primarily all iPhones in China due to there being a high skillset at that location, the costs remain variable as labor costs can fluctuate. The average salary is $10 an hour, with the top earners making $27 an hour. The components used to make the iPhone can fluctuate as well, as there are always changes in demand. Some of these components are screens, cases, cameras, chips, batteries, etc. (Brown, 2022) During the Covid-19 pandemic, while labor was decreasing from shutdowns all over the world, it made these necessary parts harder to come by. That meant that the cost went up on those items when they were available. Apple saw this occur, both with components needed to product the phones, but also as a producer of an item that became harder to provide due to the conditions and lack of available labor. (Apple Inc., 2021) Apple has fixed lease obligations for equipment and facilities for manufacturing. (Apple, Inc., 2021) These flow into the cost to produce the iPhone, but as a fixed cost. The largest piece of this for the iPhone is the equipment used to build each phone. There is a portion of the
3 manufacturing process that is done by robots, and the cost of the machinery itself is considered a fixed cost, whether paid at once, or financed. Analysis of Factors The costs that go into producing each iPhone can vary based on current market conditions. A great example of this is during the Covid-19 pandemic, the lack of working employees due to shutdowns caused shortages of many components needed to make the iPhone. (Apple, Inc., 2021) This in turn meant that the cost of the components went up, increasing the cost the make the iPhone. Another factor that could affect the cost, would be labor costs. If Apple decided to move all production to the United States, the costs associated with labor would likely greatly increase, therefore making the cost to produce the iPhone increase as well. (Brown, 2022) Lastly, if the equipment used to manufacture the phones broke down, or had to be replaced altogether, Apple would need to spend extra money to repair, replace, or use human labor to make up for it. This would obviously also cause a significant change in the cost to produce the iPhone. Ultimately the cost to make the iPhone increasing would reduce the profit margin on every iPhone sold. Another piece to this not discussed above, would be if there was an issue with manufacturing that caused the iPhones to be produced with defects. This would likely be caught by the quality control staff, but could still cause a loss in product and ultimately a hit to the profit. The costs to make up for the defective products, would then offset the product that was not defective, making their cost to produce significantly higher. Production Decisions Apple should ensure that there are proper protocols in place to prevent changes in the cost to produce the iPhone. One of the recommendations would be to purchase larger amounts
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