Production and Cost Analysis

The process of production can be studied exclusively in terms of either production or cost function. By the help of approximations of the parameters of the two functions, valuable conclusions can be drawn regarding the technology used by a firm or an industry. The main questions concerning the technology used by an industry are the effects of the production process on returns to scale, for instance, one may be interested to know if returns to scale are increasing, decreasing, or constant. The second question would be how progress in technology influences the components of the production process, and lastly, the rate at which technological progress is observed in the industry. A production and cost analysis was carried out on Apple Inc. an American technology company that specializes in designing consumer electronics and computer software. The company's hardware products include the iPhone smartphone.

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The basic factors of production involved in the manufacture of iPhone are land, labor, natural resources, and capital. Human activity is essential in the production process of iPhone through the engineers who design the iPhone App and see through the development on the mechanism of the iPhone smartphone as well as prototyping. Additionally, Apple has employees who come up with the box design for the phone (David & Ronald, 2010) and others who major in the packaging iPhones. Also, there is a workforce to supervise the packaging team to ensure that all the components are safely and correctly packed. Natural resources are an important part of the production process because several minerals are melted to make glass for the multi-touch screen, which is an essential component of the smartphone. Moreover, plastic, paper, and the ink that is used to make the box into which the iPhone is packaged are naturally acquired resources. Land in production means any natural resource obtained at any stage in the production of an item.

Variable cost is dependent on production output in that, when the volume of production increases, the variable costs increases, and decreases when the production output decreases. On the other hand, fixed costs are expenses incurred by an industry regardless of the level of output. Fixed costs include rent, office supplies, employee salary, and insurance. Regardless of the number of smartphones produced at a given time, Apple must pay rent for space it occupies to carry out its manufacture processes (Sarma, Ghandi, & Kunchai, 1989), pay its employees, as well as pay for insurance. Although these fixed costs may change over time, the change may not necessarily be influenced by production. On the other hand, variable costs include the cost of raw materials, sales commissions, direct labor, and utility costs. For instance, an increase in the price of raw materials for the production of iPhones such as glass may lead to a decrease in the volume of production of the smartphones at that given time.

The choice of inputs used in the production of iPhone is influenced by factors such as cost, flexibility, quality, the number of products, and environmental sustainability. The aim of Apple Inc. is to maximize profit but quality product notwithstanding; therefore, it should be ensured that the inputs employed into production are cost effective. Manufacturing cost could also be reduced through outsourcing components as well as buying raw materials from industries that are known to have cheaper products. In case the economy is experiencing a recession, the management may hire fewer workforces to reduce costs. Quality of products is key to maintaining the reputation of a company to the public, for this reason, Apple encourages its employees to be inventive and innovative by coming up with new ideas of improving the quality of iPhone. Also, frequently carrying out reviews on the product from customer's feedback is a helpful tool for improving quality. According to (Heizer, 2016) Apple has a program that involves carrying out a review of products every Monday.

Flexibility is the way the manufacturing process can change some aspects of a product at ease. Apple is known to present to its customers an improved version of the previous iPhone smartphone on yearly basis. This has made it easier for Apple products to incorporate innovative ideas from designers as well as the feedback obtained from customers. Just like any other company, Apple faces competition (Whetten, 2014) from other manufacturers who also upgrade their products from time to time to satisfy the market demands. To ensure environmental stability, industries are advised to select production processes that have minimal negative effects on the environment. Apple utilizes the renewable energy in its operations to reduce carbon footprint. Examples of the renewable energy are hydro-energy, solar, wind energy, and geothermal energy. Last but not least, the number of products produced determines the perfect choice of input. Since Apple produces large quantities of iPhones to satisfy millions of customers from all corners of the world, it utilizes mass production as its main manufacturing process.

Based on this analysis, quite a number of production decisions can be proposed for Apple, for instance, improving producer technology. For a long time, Apple has been known to initiate nearly all technological advancements that are currently available. Most companies, if not all, rely on Apple's ideas to create advancements in their own products. By recognizing the way Apple influences the technology world; its management can continue creating new ideas to keep controlling the world of technology. Furthermore, Apple Inc. may consider establishing some of its manufacturing back to the US to create more employment and promote the economy of the home country. In as much as the company provides about 43000 employment positions in the US, it is known that it provides twice as much overseas. For this reason, there could be customers who have neglected their products because of lack of loyalty to the mother country. New clients are as important as the long-term ones and therefore, relocating to the US could be a perfect production decision for the company. Further, Apple may procure Sapphire crystal furnaces to make millions of 5-inch iPhone display in Arizona. Sapphire is an extremely hard material that smartphone manufacturers use to produce scratch-proof monitor displays. The locally and naturally available type of sapphire is the blue sapphire gemstone, but the one used on screens is made in the lab and is clear because it contains no impurities. The first step is manufacturing the sapphire crystal whereby the extreme heat and pressure in the furnaces turn the Aluminum oxide into sapphire crystals after which they are placed in a crucible and mixed with an uncrystalized sapphire material. Next, the mixture is heated to high temperatures in the furnaces and thereafter allowed to cool over a period of about two weeks, after which the sapphire crystalizes.

References

David, A.B., & Ronald, R.B. (2010). Microeconomics: 4th edition. John Wiley & Sons, Inc.

Heizer, J. (2016). Operations Management, 11/e. Pearson Education India.

Sarma, J. S., Ghandi, V., & Kunchai, D. (Eds.). (1989). Summary proceedings of a workshop on trends and prospects of cassava in the Third World. Intl Food Policy Res Inst.

Whetten, D., & Cameron, K. (2014). Developing Management Skills: Global Edition. Pearson Higher Ed.