HUEC3032_Ch14_Costing_Pricing_note

HUEC3032_Ch14_Costing_Pricing_note - Costing &...

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Unformatted text preview: Costing & Pricing (Chapter 14) HUEC3032 1 Objectives • To define basic terms related to costing and To pricing pricing • To understand the role of pricing in financial To well-being of the firm well-being • To understand the components and To calculation of costs in product development calculation • To recognize various pricing concerns and To pricing strategies pricing • To practice cost-based pricing 2 • You can sell 1000 pieces at $10. How You many can you sell at $7? many – 1000*$10= 10,000 net sales, cost to 1000*$10= manufacture is 2000, ________________ manufacture – 2000*$7=14,000 net sales, cost to 2000*$7=14,000 manufacture is 3500, ________________ manufacture 3 Cost & Price • Cost – The monetary value expended to The produce a garment style produce • Price – The monetary value or revenue The collected from customers who purchase the product the • _______________________ 4 Relationships • Manufacturing costs & Operating Manufacturing expenses + Profit = Manufacturer’s price (MC+OE+P=MP) • Manufacturer’s price(MP) =Retailer’s Manufacturer’s cost(RC) cost(RC) • Retailer’s cost + Operating Expense + Retailer’s Profit = Retailer’s price Profit – 5 Profit & Loss Statement • Simplified chart of skeleton outline of Simplified accounting categories accounting – • Totals, business status • Compare seasons, businesses 6 Skeletal PL statement $ NS Cost of goods sold GM Operating Expenses Profit 532,808 257,613 275,195 251,870 23,325 % 100.00 48.35 51.65 47.27 4.38 7 Cost of Goods Sold • Variable costs – Costs that increase or decrease Costs in direct proportion to the number of units produced of • _Fixed Costs_ – Costs that stay the same 8 Cost of Goods Sold • Costs of materials • _Overhead___ – All expenses with materials & direct labor All required by a contract/manufacturer at factory level to make & deliver garments ordered level – May include indirect labor • Direct labor – Wages for cutters & sewers, & overhead 9 Gross Margin Gross • The amount left over after cost of goods sold is subtracted from net sales • To cover operating expenses and profit • __________________ 10 Operating Expenses Operating • Sales and marketing expenses and costs • Discounts • _Overhead_ – Salaries, real estate, equipment etc 11 Profit Profit • Out come of the relationship between net sales and costs • 4-8% of net sales for apparel businesses 12 Pricing • Price – Revenue collected from the customer in Revenue exchange for ownership of the product exchange • Concerns – – – – Cost Markup Target customers Prices and practices of competition 13 Pricing Pricing • Retail Pricing • Wholesale pricing 14 Pricing Products • Discounts & Allowances – List price • Suggested retail price Suggested • Determined amount closest to value of Determined product to consumer product – Discounts & allowances • • • _reductions in list price__ Granted by manufacturers to customers Trade Discount 15 Pricing Products • _____Trade Discount_______ – Percentage subtracted from list price that’s Percentage given to retailers to get the tentative purchase price charged by manufacturer price • __Mark Up___ – Percentage subtracted from suggested retail Percentage price – The amount retailers add to the cost of goods The (wholesale price) to achieve retail price 16 Pricing Laws • ___Limiting Pricing Contract Terms__ – Unfair trade practice – Price discrimination • Discounts Discounts 17 Pricing Strategies • Cost based pricing – Manufacturing cost + markup • __Demand Based Pricing___ – Status Pricing • List price is well above cost of production; List differentiated differentiated – Market penetration pricing • Slightly above the costs to maximize sales volume – Market pricing • Matching competitors prices 18 Pricing Strategies • ___Target Market Pricing___ – Priced at what merchandisers perceive Priced the market will bear the 19 Product Costing • Direct costing • Absorption costing • Activity-based costing 20 Basic Costing Systems • __Direct Costing__ – Only materials, construction labor, & Only sales commissions – product costs sales – All other expenses • “Expense” Expense” – Vertical structured manufacturing firms 21 Basic Costing Systems • ___Absorption Costing_____ – Some business costs to product cost – Other to operating expenses – % all overhead costs – labor costs • Distorts overall labor costs 22 Basic Costing Systems • Activity-based costing – Cost management tool – All costs – product costs – ___Most comprehensive and realistic___ – Direct & indirect – product costs 23 Phases of Costing • ___Cost estimate for line adoption___ • Preliminary costing for a sample garment • Production costing, or final cost estimate • Actual costs during production 24 Precosting phase • Preliminary Cost Estimate – Estimated cost of materials Estimated – + Labor & overhead Labor – = Total cost of goods – + Gross margin – Estimated wholesale unit price at retail 25 Production Costing phase • Final Cost Estimate – Estimates for constructing style in Estimates production run quantities production – __Proposed size range, colors, selling season__ season__ 26 Actual Costs phase • Monitor expenses • Final stage of costing process 27 Product Development Costs • Bill of Materials • Labor costs • Tariffs • Logistics - especially if you are involved in Logistics the product sourcing the 28 Costs – Bill of Materials • Detailed materials list for each style before Detailed sample is made or put out for bids sample • Fabric Fabric – Largest single cost (up to _60-70% of total cost_) – Fallout • Waste that can occur when cutting pattern blocks from Waste yardage yardage • Range of anticipated sizes affects • Marker making software 29 Variables in fabric costs • Fabric width • _Solid vs. Print_ • Size of repeat • One-way print vs. two-way print 30 Costs – Bill of Materials • Trims & Findings – Findings, Trims, Closures – Other Other • Hangers, plastic bags, labels – __Exact unit price~ estimation__ 31 Costs – Labor Costs • Up to 50% of total cost depending Up on style on – Spreading, cutting, sewing, pressing, Spreading, finishing, etc. finishing, – sample making, pattern making, sample grading, marker making grading, • __automation vs. manual_ – Large runs – Depending on styles 32 Costs – Labor Costs • __Standard allowed minutes (SAMs)____ – Previous data charts – Time required to apply the sequence of Time operations needed operations • Irregulars are also included in costing 33 34 FOB-Destination • Exporter or offshore contractor has Exporter included in price of goods included • _Transportation to port_ • Handling & loading on vessel • Cost of quota, duty & transportation Cost to port or distribution center to 35 Costs – Tariffs • Established by the congress • Collected by the U.S. Customs and Collected Border Protection Border • Deposited into the U.S. Treasury • By product category, fiber content, By COO… COO… 36 Costs – Logistics • Transporting and redistributing of Transporting goods goods • 8.4% of total cost of goods in average – Vary depending on origin • Impacts on trade patterns 37 Balancing Cost and Quality • Reducing material costs – – – Use less expensive fabric Utilize production methods that reduce waste Modifying style, fit, or construction • Reducing labor costs – Eliminating or simplifying labor intensive Eliminating construction details construction – Alternative facility/site • May affect quality 38 Working on Costing Sheet • • • • • • • • • Date Style Number Sketch/swatch Brief description Brief of the garment of Fabric Mill Manufacturer Size range/Size Size scale scale Fabric Width Marker yardage • Material: Yardage for Material: each fabric material, price per yard, total per garmt per • Trims: Amount for each Trims: trim, price/each, total per trim, garment garment • Labor – – – – Marking Grading Cutting Construction 39 – Total • Shipping/Duty Working on costing sheet Working 1. List materials and trims 2. Identify cost (per unit) 3. Calculate total for each material or trim 4. Calculate total material & total trim 5. Labor/shipping cost (per unit) 6. Calculate total cost of goods 7. Calculate wholesale price 8. Calculate retail price 40 Working on Costing Sheet • Suggested wholesale price – Generally in wholesale, 30-55% of the total Generally selling price selling – E.g., total cost is $18.50, desired markup is 45% SWP = Cost / (100-markup%)*100 = (18.5/55)*100= 33.64 ~$33.75 41 Working on Costing Sheet • Suggested Retail price – Generally in retail, initial markup is 45-60% of Generally the retail selling price the – E.g., total wholesale price is $33.75, desired E.g., markup is 55% markup SRP=SWP/(100-mp%)*100 = 42 Working on Costing Sheet • Suggested Retail price: Private Label – By removing wholesale level, markup can be By higher higher – E.g., total cost to manufacture is $18.50, E.g., suggested retail price is $75 ($60) suggested Markup = (75-18.5)/75*100 = 73.3% Markup2 = Markup2 43 Working on costing sheet Working Description Fabric Mill Manufacturer Size Range Size Scale Fabirc Width Girl's Victorian Party Dress Taiwan INCO- Hong Kong 7, 8, 10, 12, 14 1-2-3-3-3 36" 24 yds 44 Estimated Market Yardage Working on costing sheet Working • Materials – Fabric #1: 2yd, $1.48/yd – Fabric #2: .25yd, $1.19/yd • Trim – 1 Button, $.12/unit – Other, 2.5, $.54/unit • Labor – Marking/grading: $.57 – Cutting: $.35 – Construction: $4 • Duty/Shipping: $1.05 45 ...
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