Final Assignment

Problem 16.2

Many consumer items today are designed in the United State and manufactured over-seas where labor costs are much lower. A middle range athletic shoe from a name brand manufacturer sells for $70 in the U.S. The shoe company buys the shoe from an off-shore supplier for $20 and sells to the retailer for $36. The profit margin for each unit in the chain is: supplier-9%, shoe company-17%, retailer-13%. Estimate major categories of cost breakdown for each unit of chain. Do this as a team problem and compare the results for the entire class.

Answer:

Estimation of the major categories of cost breakdown for each unit in the chain:

Production labor                                 $2.75
Materials                                                 $9.00
Rent, equipment                                  $3.00
Supplier’s operating profit              $1.75
Duties                                                        $3.00
Shipping                                                   $0.50
Cost to shoe company          $20.00

Research and development                 $20.50
Promotion and advertising                  $4.00
Sales, distribution, admin.                   $5.00
Company’s operating profit                 $6.50
Cost to retailer                           $36.00

Retailer’s rent                                      $20.00
Personnel                                              $15.00
Other’s                                                    $15.00
Retailer’s operating profit             $20.00
Cost to consumer                        $70.00

Problem 16.4

A manufacturing of small hydraulic turbines has the annual cost data given here. Calculate the manufacturing cost and the selling price for a turbine.

Raw material and component costs                           $2150 000

Director labor                                                                         950 000

Direct expenses                                                                       60 000

Plant manager and staff                                                    180 000

Utilities for plant                                                                   70 000

Taxes and insurance                                                            50 000

Plant and equipment depreciation                               120 000

Warehouse expenses                                                          60 000

Office utilities                                                                         10 000

Engineering salaries (plant)                                             90 000

Engineering expenses (plant)                                          30 000

Administrative staff salaries                                           120 000

Sales staff, salaries and commissions                          100 000

Total annual sales : 60 units

Profit margin :15%

COST – EVALUATION

Fixed Cost Taxes and insurancePlant and equipment depreciation

Warehouse expenses

Office utilities

Engineering salaries (plant)

Engineering expenses (plant)

Administrative staff salaries (G & A Expenses)

Sales staff, salaries and commissions (G & A Expenses)

    $50 000.00120 000.00

60 000.00

10 000.00

90 000.00

30 000.00

120 000.00

100 000.00

Total $   580 000.00
Variable Cost Raw material and component costsDirector labor

Direct expenses

Plant manager and staff

Utilities for plant

$   2150 000.00950 000.00

60 000.00

180 000.00

70 000.00

Total $   3410 000.00 
Total Cost (Manufacturing Cost) Fixed cost + variable cost($580 000.00+ $3410 000.00) $  3990 000.00
Tax and Insurance Tax     $50 000.00
Production Cost Production cost/Quantity    $66 500.00
Cost per Unit (Cost per unit + estimated profit 15%     $76475.00
Selling Price per Unit (Total cost + Profit)=$  3990 000.00+$598 500    $4588500.00
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