Which iPhone model is the most profitable for Apple?

In late September 2017, Apple Inc. (NYSE: AAPL) announced that it would be releasing three new models of its iPhone in the fourth quarter of 2017: the iPhone X, the iPhone 8 Plus, and the iPhone 8. In addition, it would continue to sell some of the older models.

To follow is a table containing price and cost estimates for the current three new iPhone models plus one older model. The estimated direct materials costs were developed by IHS Markit and Susquehanna International Group. Other listed costs and data are assumptions.

See data table for readable data

 

An Excel file containing the iPhone data and assumptions can be downloaded here.

Questions

  1. Which iPhone model is the most profitable for Apple? Which metric are you using to gauge profitability? Defend your choice of metric.
  2. Assume that Apple has unlimited demand for every iPhone model. Which model should it emphasize to maximize profits if skilled labor is a scarce resource?
  3. Why might Apple offer several iPhone models rather than just the one most profitable model?

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.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Copyright 2017 Wendy M. Tietz, LLC

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.

2 Responses to “Which iPhone model is the most profitable for Apple?”

  1. Just wanted you to know, this subject has just been added to my lecture class for ACG2071 Managerial Accounting – perfect discussion to begin our chapter! Thanks!

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