Summary
In the article have just review, the Apple's iTunes App Store may be the biggest mobile application around but there aren’t much of revenue generators for the company. Apple claims that they run the App store at ''a bit over break-even.'' Apple spends roughly $1 billion to developing up to 5 billion free and paid application downloads-- So far Apple's total gross profit is on $189 million since the day it’s launched. That is about only 1 percent of the company's $33.7 billion gross profit during the same period. Using the same pricing scheme for iTunes, with a 70 percent ($1.04) to the developer, $0.30 plus 2 percent of the ASP ($0.23) to the credit card company, and 1 percent ($0.02) per application for processing the (storage and delivery), Apple's Store gross margin on revenue from paid apps ($428 million) this is roughly 44 percent, or $189 million in gross profit. This does not factor in the roughly $81 million Apple has spent since they launch the App Store and they deliver the 4 billion free apps that have been downloaded. So thus the even though the App Store is through the roof, Apple certainly does not bother because Apple's main purpose is to sell hardware. The App Store is consider to be its secondary business.
Connection
This article is connected to chapter 11 because of the gross profit income. Gross profit represents the trading business, the excess of net sales over the cost of goods sold. In the article, the Apple iTunes App Store is losing revenue form this programme. Apple spends roughly $1 billion to develop up to 5 billion apps which result in losing of money. But thie earning will make up for the others hardware being sold which will reslut in the gross profit that didn’t earn from the apps. This way people will buy the hardware for the cheap apps.
Reflections
As I can see in this article, an accountant must understand that they can be losing money from certain part of their business like for example the appstore, but at the same time they should know how they can it make up doing other sales. The gross profit can be increasing and decreasing at anytime of the business. Yet, it can be easily make up by selling other goods for example their Iphones, Imac, etc. Even though Apple is down in gross profit, they will still be able to make up for the money from their sales of their hardware. If they were to increase the price of their apps to be able to make up for their gross profit, less people will buy their hardware; mainly people buy Apple’s hardware because they are able to obtain the apps at a really cheap price. As a result, this leads Apple to the decent amount sales every year. A very smart tactic.
