Problem 16.2 : COST EVALUATION

Many consumers item 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 labour                               $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
Others                                                 $15.00
Retailer's operating profit                   $20.00
Cost to consumer                               $70.00