Fixed vs. Variable Costs: Apple iPhone 5

788 Words Jan 13th, 2018 3 Pages
"Fixed costs are costs that are independent of output" and the company cannot alter these costs, no matter what the demand for the product (Variable cost and fixed costs, 2012, Economics Fundamental Finance). "These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc." (Variable cost and fixed costs, 2012, Economics Fundamental Finance). In the case of Apple, such fixed costs might include the costs of subcontracting with manufacturers to make the iPhone 5 as well as the costs to keep Apple's own facilities running while engineers troubleshoot the new product. There is limit to how much a company can alter its fixed costs, although fixed costs usually do not increase dramatically in the short term, either. In the long term, of course, Apple can renegotiate its contract with the companies with whom it outsources; find cheaper places or methods to manufacture the iPhone, etcetera. But the key aspect of fixed costs is that regardless of how many iPhones it chooses to manufacture, Apple cannot alter those costs very much over the course of the initial phases of production.
Factors which affect fixed costs include the availability of outsourcing, which Apple has famously (some would say infamously) capitalized…

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