INTRODUCTION TO ECONOMICS FOR BUSINESS Essay Example | Topics and Well Written Essays - 2000 words

INTRODUCTION TO ECONOMICS FOR BUSINESS - Essay Example In this context we will look at the costs incurred in the production of Apple’s new generation iPads. The company has basically two models of the new generation iPad models; one that is equipped with 32 GB on NAND flash memory and the other that is equipped with 64 GB NAND flash memory and both with a 4G long term evolution (LTE) wireless capability. These are just but the major brands of the new generation iPads. What stands out is the difference in the price of production of the two different models. Looking at the bill of materials of these two, we find that the new iPad 32 GB carries a total of $364.65 and an additional cost of about $10.75 which covers the cost of manufacturing one unit so that the total bill of materials for this iPad to be at $375.10. The 64 GB one’s bill of materials is just $22.85 more than that of the 32 GB model. Looking at these new models, it is simply the prices of their parts that make them so expensive. â€Å"For instance the NAND flash memory prices range from $16 to $67 and are one of the key profit generating components for Apple in the new iPad line† A. Rassweiler (2012) noted. The iPads display and touch screen are also expensive at $120 according to Andrew Rassweiler (2012) too. Some other parts include the $23 A5X processor manufactured by Samsung and which makes up 6.3% of the total BOM, a $41.50 camera similar to the one installed in the iPhone 4 modules, and an improved capacity lithium polymer battery that cost $32.00per piece. This new battery can support 42.5 watt hours which is about 75% from the previous 25 watt hours in the iPad 2. This new battery costs only about 40% more than the old model which costs about $22.75. All in all, basically the 2nd generation iPads cost about$271.00 to produce, about 9 percent cheaper than the 3rd generation ones. According to IHS iSuppli’s Fred Straker (2012). Apple has chosen to leave the price difference at only $71 in order to make it difficult for any other company to beat the price of the iPad 3 given how expensive its production cost is. The average variable cost of producing these new model iPads is just about $360 which is a very high price per unit produced. This however means that on the other hand Apple won’t be able to make quite the profit margin that it was evidently used to with the sale of every iPhone unit, although they will not be too much at loss as most of their profits will be from the 64 GB versions of the new iPads, that is if they sell. The cost of making a 64 GB version just beats that of making the 16 GB one by about $50, with the retail price difference being over $200 due to the added 4G LTE networking technology. This is basically an upgrade that pushes up the retail price of the 64 GB version way beyond the cost of the actual upgrade. This actually means that the more expensive iPads if sold will comfortably cover for the not so much profits earned by the company through the selling of the sl ightly affordable ones. Specifically the 64 GB8with no 4G and the 16 GB9 up to the 64GB11 are Apple’s most expensive iPads and if sold will earn the highest of profits. These are the models that can earn the company the profit margins they are looking forward to. Also the retail price of the iPad 3 is about $629 and that gives Apple a marginal profit of about 51% which is slightly less than that of the 3G iPad2