Apple Manufacturing Cost Categorization
In this article, I would like to discuss one of the biggest manufacturing companies in the world, Apple Inc. In 1976, Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. Their first product is a personal computer, named the Apple I, which was launched in July 1976. Right now their main products are smartphones (iPhone), tablets (iPad), portable music devices (iPod), personal computers (Mac), AppStore, iTunes, and software (macOS). The company also offers network solutions and other services (Joe, 2014).
Manufacturing Costs Incurred
- Direct Cost: a cost that directly linked to the manufacturing activities of a specific good or service (Kenton, 2022). As for Apple, the direct cost will be materials and component cost, manufacturing cost, labour cost, licensing fee, and operating expenses that is consists of Research & Development and Selling, general, and administrative costs (Sherman, 2013). This type of cost mostly are variable cost since it may change over time or depending on the quantity being utilized.
- Indirect Cost: according to Accounting Tools (2022) Indirect costs are costs defined as the cost used by several activities and therefore cannot be assigned to specific cost objects. Rent, administrative salaries, and utilities are the example of the indirect cost that should be paid by Apple. Even though in many companies the indirect cost mostly a fixed cost, Indirect costs can be either fixed or variable costs, including Apple’s. Some of the costs such as rent and administrative salaries are fixed, while utilities cost will be varied depend on the actual usage and the unit price. Thus, in Apple case, the indirect cost is a mixed cost.
- Overhead Cost: expense incurred to support the business while not being directly related to a specific product or service (Tuovila, 2021). As for Apple, the overhead cost applied are: insurance, taxes, Administrative costs, Advertising, Sales and marketing, warehouse, and transportation. Similar with the indirect cost, the overhead cost can be either fixed or variable costs since some of it (insurance and warehouse) are fixed cost while the rest are variable costs.
Conclusion
By looking at Apple’s manufacturing cost categorization, we can see that it mostly consists of variable costs while the fixed cost only limited to the rent, insurance, warehouse, and administrative salary. Good financial managers need to understand on how to create an effective budgeting plan in order to maximize the profit while controlling the budget. As we see, that the biggest expenses are mostly the variable costs which fluctuated all the time. Therefore, they need to know how to estimate how much the fluctuation rate will be so that they can create an accurate budgeting plan for their company.
References
Accounting Tools. (2022, February 17). Indirect Costs Definition. Retrieved June 24, 2022, from https://www.accountingtools.com/articles/what-are-indirect-costs.html
Apple Inc. (2022). CONDENSED CONSOLIDATED STATEMENTS OF OPERATION. https://www.apple.com/newsroom/pdfs/FY21_Q3_Consolidated_Financial_Statements.pdf
Brown, R. (2022, March 28). The Cost of Making an iPhone. Investopedia. Retrieved June 24, 2022, from https://www.investopedia.com/financial-edge/0912/the-cost-of-making-an-iphone.aspx
Joe, A. (2014, March 7). Apple Inc. — Company information — Market business news. Market Business News. Retrieved June 24, 2022, from https://marketbusinessnews.com/apple-inc-company-information/14919/
Kenton, W. (2022, March 11). Direct Cost. Investopedia. Retrieved June 24, 2022, from https://www.investopedia.com/terms/d/directcost.asp
Sherman, J. (2013, July 26). Breaking down the $650 price of the iPhone. Digital Trends. Retrieved June 24, 2022, from https://www.digitaltrends.com/mobile/iphone-cost-what-apple-is-paying/
Tuovila, A. (2021, August 31). Overhead Definition. Investopedia. Retrieved June 24, 2022, from https://www.investopedia.com/terms/o/overhead.asp
Note:
This article is written based on University of The People Managerial Accounting (BUS 5110) written assignment by Fristy Tania in June 2022
