Design Product Selling Price
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For a product which just entries the market, in order to get the highest benefits, the cost pricing and selling pricing analysis are essential. At the same time, the quality and function satisfaction could not be missed either.
4.1 Design Product Selling Price
According to the cost-plus pricing method written by professor Lemass (2011), the total selling price is containing the profit price per unit and total cost of product per unit. Product cost contains prime cost and expense. Specifically, Prime cost is the sum of direct labour and direct labour costs, then expense includes manufacturing expenses, marketing expenses, and general expenses (see table below).
Profit
(before tax)
Selling
Price
General
expenses
Total
product
Marketing
expenses
Cost of
Product
Manufacturing
& marketing
Manufacturing
Expenses
Cost of
Product
manufacturing
Direct
labour
Prime Cost
Direct
material
Table 4.1 cost-plus pricing for a manufactured product
4.1.1 Prime cost
In order to calculate the prime cost, some factors should be assumed. Firstly, workers are considered to work six hours per day. Secondly, one machine which is operated by 3 workers is supposed to produce 6 products an hour and hourly operating machines are assumed to be 5. Also, to minimize the labour cost, we choose china as our producing country where may have the lowest manufacturing labour cost around the world
Firstly, from manufacturing workers salary (2008), and Official public holiday (2010), we can get the average of Chinese worker hourly cost is $1.36 per hour in suburban area and workers get 11 days leave per year. To calculate direct labour, the equations are shown below:
direct labour
Wages: 6 hrsĂ—5 daysĂ—52 weeksĂ—$ 1.36Ă—3Ă—5=$ 31,824/year
Leave loading: 4 weeks at 15%
4 wksĂ—5 daysĂ—6hrsĂ—$ 1.36Ă—5Ă—3Ă—15%=$367.2/year
Payment tax: According to World Tax website (2011), worker who gets 1770 RMB per month has a 10% payment tax
10%Ă—($31,824+$367.2)=$3,219.12/year
Pension funding: Farid and Cozzarin presented that Chinese worker has a pension fund in 13% of the pretax salary (2008, p182).
13%Ă—($31824+$367.2)=$4,184.86/year
Total= $ 39,595.18/year
Hours/year: 52Ă—5Ă—6=1,560 hrs
Annual leave: 25Ă—6=150 hrs
Sick leave: 2Ă—5Ă—6=60 hrs
Public holiday:13Ă—6=78 hrs
Long leave: 6Ă—6=36 hrs
Total hours = 1,236 hrs/year
Cost per product= $39,595.18Ă·(1,236Ă—6Ă—5)=$1.07 /product
Secondly, to get the direct material cost, our product cost can be estimated by 3 parts. The knifes are locked in wood core which is surrounded by a stainless steel. First is the stainless steel frame, which has about 0.1 cm thickness. Second is the wood core, which is considered as a cuboid in 40cmĂ—25cmĂ—12cm size. Third part is 4 long knifes in 20cmĂ—4cmĂ—0.4cm size, as table below is showing.
Volume
Stainless frame
40cmĂ—25cmĂ—12cm
3.56Ă—10-4 m3
Wood core
40cmĂ—25cmĂ—12cm
1.2Ă—10-2 m3
Knifes (4)
20cmĂ—4cmĂ—0.4cm
3.2Ă—10-5 m3
Table 4.2 units of knife container
According to the newest price list shown below on Meps website (2011), the price in January 2011 is taken to get the raw material cost. Because of the shape of container, the cold rolled coil stainless steel which has a better ability to be transformed is considered. Moreover, in order to minimize capital cost, we choose the cheapest model, which is 304 pricing at $ 3635 /ton. This stainless steel is also to produce knifes.
Month
Hot Rolled Coil (304)
Hot Rolled Coil (316)
Hot Rolled Plate (304)
Hot Rolled Plate (316)
Cold Rolled Coil (304)
Cold Rolled Coil (316)
Cold Rolled Coil (430)
Drawn Bar (304)
Drawn Bar (316)
Jul-2010
Aug-2010
Sep-2010
Oct-2010