Final Project Part I, Milestone II
The iphone X is an expensive phone to produce. The Samsung made display is the most expensive part, costing Apple around $80 for a single panel, the new A11 Bionic chipset costs $26, while the Qualcomm modem costs around $18. Other features including the 3D Face ID sensor is worth around $25, while the front glass panel costs approximately $18, and these are just a few examples (Dimitrov, P. (2017, September 15).
A. Three key inputs and fixed and variable costs involved in the production
Factors of production are the inputs that are used in the production of goods to make an economic profit. Labor, land, capital and entrepreneurship are important components in the production of the iPhone X and the profitability of Apple.
Labor is a key factor in the production of the iPhone. Apple’s manufacturing and outsourcing of products is diverse and sprawls across numerous countries around the world. The design, development and marketing work, and the creation of the software, are all done in the United States. Other labor involved in production of an iPhone X includes design, applications, software, retail and sales. In addition to the labor force that provides components, Apple has thousands of employees at various corporate headquarters, retail stores, and design centers. For assembly Apple relies on manufacturers in China, such as Foxconn.
Land and natural resources are another factor in the production of the iPhone X. Glass for the screens, plastic for the casing and land used for stores, repair shops, and showrooms are all examples of land and resource use. Apple also has a disassembly robot that takes parts from inside older devices to make new products. The idea is to make products from renewable materials or recycled products and take nothing from the earth. The robot can recover rare earths, aluminum and tungsten, reducing the need to mine. (Environment – Resources. (n.d.). Retrieved from https://www.apple.com/environment/resources/). Apple also runs its factories on 100% renewable energy, their packaging materials are recycled and they switched from plastic to paper
Capital refers to the human-made tool required to produce goods and services. Apple’s factories, machinery, retail stores, material components and technology would be examples of capital. Capital may also include the money used to buy such equipment and to start and maintain day to day business operations. The more the iPhone advances in technology and high- tech components, the more it costs to build and the higher its retail price.
Factors of production also include fixed and variable costs. Fixed costs remain constant and the company cannot change these costs. Examples of fixed costs in relation to the iPhone X are electricity to run their plants, day to day operations of Apple stores such as rent, building maintenance and machinery
Variable costs are costs that vary with output, so the more Apple produces the iPhone X the greater the variable costs. A good example of variable cost is employee wages. If Apple produces more product, more workers will need to be hired or current workers will have increased hours and more overtime. The costs to keep the factories operating longer if employee must work longer hours troubleshooting the new products, and finally raw materials that go into the phone are all variable costs. If the iPhone X isn’t selling well, variable costs can be cut by downsizing the labor force and reducing production.
B. Analyze the factors that impact your choice of inputs to produce the chosen product or service.
Apple employs many workers in China to save on production costs. Factories in China are bigger than in the US, wages are slightly lower and many workers live on site, making it easy to pull together a last-minute crew if needed. However, using other countries can have its problems as well. If a factory were to close temporarily that produces the iPhone X, this could cause significant delays in production which would affect supply globally. Another factor would be if the wages were to increase in China, Apple would have to decrease production and perhaps relocate. If Apple decided to produce more in the US, the price of the iPhone X would increase and Apple would be losing profits.
China has many of the natural resources and land availability for Apple to manufacture the iPhone X. If the cost and availability of raw materials such as plastic or glass were to change this would affect factors of production. Any natural event such as an earthquake or natural disaster which results in factories becoming damaged and shutting down would hurt business. Possible increases in rent are a factor since Apple doesn’t own the factories. These issues could impact labor and hurt production.
Capital refers to the tools and skills used to produce the iPhone X. Machinery and warehouses technology are factors that impact production. The machinery and technology is expensive and affects how much can be produced. The more an iPhone X costs to build, its retail price will increase, which affects demand, profit and capital. (Ireland, K. (2017, September 26)). Apple uses Samsung to provide the OLED screen for the iPhone X, and since Samsung is the only supplier of OLED panels, Apple’s orders with Samsung affect future iPhone X production. (Smith, C. (2018, February)).
B. Production Decisions
Figure 1. The Cost of Making the iPhone X by F. Richter, 2017, Retrieved June 3, 2018. Reprinted from: https://www.statista.com/chart/5952/iphone-manufacturing-costs/).
Despite the $999 price tag, customers bought the iPhone X. Some people believe that no phone should cost a thousand dollars, while others point to the amount of technology the iPhone X features. Many high-end smartphones are as powerful as PCs, so for some the price is reasonable. So how much does it cost Apple to produce it? According to estimates by IHS, the material costs of the iPhone X amount to $370.25, making it by far the most expensive iPhone to-date (Richter, F. (2017, November 16)).
It would make more sense for Apple to move on and perhaps not produce any more of the iPhone X. By using up their currently supply of the iPhone X and with the iPhone 8 and 8 Plus in production, this will fulfill the need for older models with Apple’s most recent chip technology along with the older iPhone 7. The three new iPhones will have all the price points covered plus the latest edge to edge and facial recognition, with one having the OLED screen.( Smith, C. (2018, February 02)). There’ll be no role for iPhone X to play. This seems to be a pretty logical decision, Apple stays ahead as the leader in innovation and cutting-edge technology in the smartphone field while offering the same level of quality and prestige that their customers expect.
Blodget, H. (2012, January 22). This Article Explains Why Apple Makes iPhones In China and Why the US Is Screwed. Retrieved from: http://www.businessinsider.com/you-simply-must-read-this-article-that-explains-why-apple-makes-iphones-in-china-and-why-the-us-is-screwed-2012-1
Dimitrov, P. (2017, September 15). Apple iPhone X: Here’s the estimated production cost. Retrieved from https://www.phonearena.com/news/Apple-iPhone-X-Heres-the-estimated-production-cost_id98129
Environment – Resources. (n.d.). Retrieved from https://www.apple.com/environment/resources/
Friedman, A. (2018, January 23). Report says Apple sold 29 million iPhone X units during the holiday quarter. Retrieved from: https://www.phonearena.com/news/Sprint-free-Moto-e4-with-lease_id101877
Ireland, K. (2017, September 26). What Are the Factors of Production for Computers? Retrieved from: https://bizfluent.com/info-12206439-factors-production-computers.html
Miller, C., Chance Miller, & Apple. (2017, November 06). IPhone X said to cost Apple $357 to make, gross margin higher than iPhone 8. Retrieved from https://9to5mac.com/2017/11/06/how-much-iphone-x-costs-apple-to-make/
Minasians, C. (2018, February 28). Cook sidesteps question after Trump promises Apple plants in US. Retrieved from: https://www.macworld.co.uk/feature/apple/where-are-apple-products-made-3633832/
Richter, F. (2017, November 16). Infographic: The Cost of Making the iPhone X. Retrieved from: https://www.statista.com/chart/5952/iphone-manufacturing-costs/
Smith, C. (2018, February 02). New report says Apple will stop making the iPhone X in the second half of the year. Retrieved from: http://bgr.com/2018/02/02/iphone-x-discontinued-second-half-2018/