What is the gross margin on the Apple iPhone 5S and 5C?

iphone5According to the GottaBe Mobile website in September 2013, the Apple iPhone 5S with 16 GB memory sells off-contract for $649, while the iPhone 5C with 16 GB memory sells off-contract for $549.  The same phones with 32 GB memory sell off-contract for $749 and $649.

According to Bloomberg Businessweek and IHS iSuppli, the iPhone 5S model with 16 GB memory costs $199 to produce.  IHS iSuppli also reports that the 5C model of the iPhone (also with 16 GB of memory) costs $166 to produce.  An extra 16 GB of memory for each phone (to bring it to a total of 32 GB memory) costs Apple about $0.71 per GB.

Questions

1. Calculate the gross margin in dollars for each of the following phone models/configurations:

  • a. iPhone 5S with 16 GB memory
  • b. iPhone 5S with 32 GB memory
  • c. iPhone 5C with 16 GB memory
  • d. iPhone 5C with 32 GB memory

2. Calculate the gross margin inpercentage for each of the following phone models/configurations:

  • a. iPhone 5S with 16 GB memory
  • b. iPhone 5S with 32 GB memory
  • c. iPhone 5C with 16 GB memory
  • d. iPhone 5C with 32 GB memory

3. Which phone model is most profitable for Apple?

4. Apple has made a conscious decision to not make its phones’ memory cards swappable (i.e., the phone owner cannot purchase a larger memory card at a later date to give the phone more memory).  The consumer must upgrade to an entire new phone if additional memory is needed at a later date.  Why do you think Apple has made this choice?  Do you think Apple’s decision is ethical and sustainable?  Provide your rationale for your answer.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. †Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. †The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

One Response to “What is the gross margin on the Apple iPhone 5S and 5C?”

  1. Interesting costs and margins, thanks for this.

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