A research firm, IHS ( formerly known as iSuppli), did a teardown of the iPad mini shortly after Apple introduced the small tablet in late 2012.1 IHS estimated that the costs of the components in the base model of the iPad mini (Wi- Fi- only 16 gigabyte) add up to $ 188. See data table on next page.

Questions

1. Do you think that Apple uses a process costing system or a job costing system? Give reasons for your answer.

2. The iPad mini is assigned a cost of $ 10 for “manufacturing cost.” What specific costs do you think are included in that “manufacturing cost”?

3. In accounting terminology, what would “Bill of Materials (BOM)” be when discussing product cost?

4. The gross profit per iPad mini is approximately $ 131, which is the difference between the retail price of $ 329 and its estimated cost (BOM + Manufacturing) of $ 198. Is Apple really making $ 131 for each iPad mini sold? If not, what other types of costs would that gross profit of $ 131 have to go toward covering?

5. The Bill of Materials (BOM) costs for the units sold would appear on Apple’s income statement. In which income statement component would these BOM costs appear?

6. Late in 2012, Apple announced that it was going to start manufacturing some products in the United States rather than in China. If the iPad mini were to be manufactured in the U. S., which cost components would you expect to increase? Which cost components might you expect to decrease? What other factors would Apple consider when deciding where to manufacture its products?

Preliminary Bill of Materials ( BOM) and Manufacturing Costs for the iPad mini with 16GBytes of NAND Flash and Wi- Fi Only ( Pricing in U. S. Dollars)

Components/ Hardware Elements Price

Retail Pricing (As of November 2012)......................................................... $ 329

Total BOM Cost........................................................................................... $ 188

Manufacturing Cost..................................................................................... $ 10

BOM + Manufacturing................................................................................ $ 198

Major Cost Drivers

Memory: 512MB LPDDR2 + 16GB NAND NAND Flash + DRAM..........$ 15.50

Display & Touchscreen: 7.9. 1024×763 w/ GF2 Multitouch........................ $ 80.00

Processors: Apple APL2498 (32nm A5)...................................................... $ 13.00

Camera( s): 5MP BSI + 1.2MP 720p BSI.................................................... $ 11.00

User Interface & Sensors & Combo Module (WLAN/ BT/ FM)..................$ 15.00

Power Management....................................................................................... $ 7.50

Battery: 3.72V 16.5Wh Li- Polymer.............................................................. $ 13.50

Mechanical/ Electro- Mechanical/ Other....................................................... $ 26.00

Box Contents....................................................................................................$ 6.00