I like how you actually believe it costs $89.
Sure it costs that much in parts, the same way a $20k car costs about $11000 to build.
But do you know the insane amount of engineering behind? In a car, the factory, all the testing, design, etc.
Here on the watch, writing an entirely new OS, CREATING THE ABSOLUTELY TINY S1 chip which is an insane feat, an A5 chip with all other parts in one tiny square, the almost impossible to curve sapphire machines they now own, the amount of testing and marketing, the training, dude, this goes well above $89 bucks.
There's a whole lot more value than parts in new products.
Apple didn't spend the last 4 years building 89 dollar watches and it's now selling them to get them back.