This document is a course project for a student at Vilnius Gediminas Technical University. The project analyzes the pricing of high quality running shoes produced by a French company. It will involve a cost analysis and use of the break-even method to calculate price. The project will first review relevant pricing theory concepts. It will then describe the company and product, the industry, and goals of pricing. It will calculate BtoB, BtoC, and break-even prices. It will conclude by discussing the company's existing pricing and discounts.
Required documents for opening Bank Account.pptxTasrifRahmanAbir
This document outlines the requirements for opening a bank account, including required documents and photos for different types of account holders. It provides details on:
1. The types of individuals and entities that can open an account, such as any adult, minor, business, organization, or institution.
2. The basic documents required for individual account holders with or without a national ID, including applications, IDs, addresses, and sometimes proof of income or business.
3. Additional documents required for non-individual account holders such as various businesses, organizations, projects, societies, cooperatives, schools/colleges, and trusts. Documents include registration certificates, resolutions, lists of directors/trustees, and personal information of sign
This document discusses various pricing strategies retailers can use based on consumer perception, including pricing foods with odd or even numbers to match their image, pricing new items high or low, selling products in a line at specific price points, bundling items as a package for one price, pricing items below cost to attract customers, and using different prices for limited capacity goods like concerts to maximize revenue.
This document provides an overview of pricing strategies and considerations. It discusses how small price changes can have large impacts on profits for companies. It also covers different criteria for setting prices such as costs, customer willingness to pay, and competition. The document discusses estimating the economic value for a product or service and comparing it to alternatives. It notes that startups often underestimate unique value and overestimate costs. The document also covers different pricing models such as transactional, subscription, and free models. It emphasizes that businesses should focus first on creating value before setting a price.
Business Economics - Unit-4 - Osmania UniversityBalasri Kamarapu
This document provides an overview of cost concepts and classifications that are important for business economics. It discusses different types of costs such as direct costs, indirect costs, fixed costs, and variable costs. It also covers cost classifications based on nature, relation to cost centers, functions, behavior, management decision making, production process, and time. Key cost concepts explained include total costs, average costs, marginal costs, opportunity costs, and sunk costs. Cost classification is presented as a logical process to categorize costs according to their features to aid accounting and economic analysis.
This report provides an overview of accounting information, financial systems, and finance options needed to improve and expand a manufacturing business. It discusses the importance of understanding different types of accounting, performing break even analysis, establishing accurate costs, implementing strong financial and management accounting systems, and considering options to raise additional finance such as loans, grants, or private investment. The report emphasizes the importance of accounting information for pricing, decision making, monitoring budgets, and ensuring business profitability and survival.
Reply to DiscussionsD1 bhuvanaAccounting plays a vital role.docxchris293
Reply to Discussions
D1: bhuvana
Accounting plays a vital role in an organization, which leads to gain favorable profits. Change in activity of production also affects the differences in cost behavior. This behavior is implied as a change in the whole business. Cost may stay the same or replacement depending on the market. In managerial accounting and cost accounting, t three types of cost behavior are most common (("Cost Behavior Patterns", 2020).
Variable costing, fix costing, and mix requiring are types. In variable cost, the cost is directly proportional to the activity, and as the activity increases, the value also increases. And the opposite is too exact (Graybeal, Franklin & Cooper, 2020).
Fixed costs, as the name indicates, are the costs that do not change when the activity is increased or decreased. The price is not affected by the production or any event. Mixed costs are a combination of fixed and variable expenses partially (Lakmal, 2014).
The management team must understand how cost behavior is crucial for planning and controlling the cost of organization activity with an analysis of the damage to volume profit. To design a budget for a business, studying the effects of cost change in the activity level showcases how much profit can be generated (Popesko & Novák, 2014).
Process costing
In process costing, the cost is assigned to the process of manufacturing each unit of production. In this, the price of each unit is assumed to be the same. This type of costing is commonly used where the production of goods takes place at a mass level. The costs are not distinguished easily when it is linked to individual units ("Types of Costs by Behavior", 2020).
Weighted average cost, first in first out, and standard charge are the different types of costing process. In process costing, costs are built over a fixed duration and then are assigned to units of production at a specific time frame ("What Are Cost Behavior Patterns?", 2020).
A company that is owned by Mark and Perk produces the machines in a batch. The setup cost per batch is $2300. $3 is the variable cost A let units for 1-13000. Another variable cost per unit that is more than 13000 is $7. The fixed cost initially js $12000. For every 10,000 units, the cost of the additional fire is $3000. Determine the total cost for the company with the 13,600 units produced in 10 batches.
Total cost= $2300*10+$3*13,600+$12000
=$75800
References
Cost Behavior Patterns. (2020). Retrieved 7 June 2020, from https://saylordotorg.github.io/text_managerial-accounting/s09-01-cost-behavior-patterns.html
Graybeal, P., Franklin, M., & Cooper, D. (2020). Identify and Apply Basic Cost Behavior Patterns. Retrieved 7 June 2020, from https://opentextbc.ca/principlesofaccountingv2openstax/chapter/identify-and-apply-basic-cost-behavior-patterns/
Lakmal, D. (2014). Cost Analysis for Decision Making and Control: Marginal Costing versus Absorption Costing. SSRN Electronic Journal. doi: 10.2139/ssrn.
This document discusses cost concepts relevant for production planning and decision making. It defines different types of costs such as explicit vs implicit costs, direct vs indirect costs, private vs social costs, relevant vs irrelevant costs, economic vs accounting costs, separable vs common costs, and fixed vs variable costs. It also explores the relationship between production and costs, discussing how cost functions are related to production functions and how average and marginal costs are related to average and marginal products. Short-run cost functions are examined, showing how total, average, and marginal costs change at different output levels when some factors are fixed in the short-run.
Required documents for opening Bank Account.pptxTasrifRahmanAbir
This document outlines the requirements for opening a bank account, including required documents and photos for different types of account holders. It provides details on:
1. The types of individuals and entities that can open an account, such as any adult, minor, business, organization, or institution.
2. The basic documents required for individual account holders with or without a national ID, including applications, IDs, addresses, and sometimes proof of income or business.
3. Additional documents required for non-individual account holders such as various businesses, organizations, projects, societies, cooperatives, schools/colleges, and trusts. Documents include registration certificates, resolutions, lists of directors/trustees, and personal information of sign
This document discusses various pricing strategies retailers can use based on consumer perception, including pricing foods with odd or even numbers to match their image, pricing new items high or low, selling products in a line at specific price points, bundling items as a package for one price, pricing items below cost to attract customers, and using different prices for limited capacity goods like concerts to maximize revenue.
This document provides an overview of pricing strategies and considerations. It discusses how small price changes can have large impacts on profits for companies. It also covers different criteria for setting prices such as costs, customer willingness to pay, and competition. The document discusses estimating the economic value for a product or service and comparing it to alternatives. It notes that startups often underestimate unique value and overestimate costs. The document also covers different pricing models such as transactional, subscription, and free models. It emphasizes that businesses should focus first on creating value before setting a price.
Business Economics - Unit-4 - Osmania UniversityBalasri Kamarapu
This document provides an overview of cost concepts and classifications that are important for business economics. It discusses different types of costs such as direct costs, indirect costs, fixed costs, and variable costs. It also covers cost classifications based on nature, relation to cost centers, functions, behavior, management decision making, production process, and time. Key cost concepts explained include total costs, average costs, marginal costs, opportunity costs, and sunk costs. Cost classification is presented as a logical process to categorize costs according to their features to aid accounting and economic analysis.
This report provides an overview of accounting information, financial systems, and finance options needed to improve and expand a manufacturing business. It discusses the importance of understanding different types of accounting, performing break even analysis, establishing accurate costs, implementing strong financial and management accounting systems, and considering options to raise additional finance such as loans, grants, or private investment. The report emphasizes the importance of accounting information for pricing, decision making, monitoring budgets, and ensuring business profitability and survival.
Reply to DiscussionsD1 bhuvanaAccounting plays a vital role.docxchris293
Reply to Discussions
D1: bhuvana
Accounting plays a vital role in an organization, which leads to gain favorable profits. Change in activity of production also affects the differences in cost behavior. This behavior is implied as a change in the whole business. Cost may stay the same or replacement depending on the market. In managerial accounting and cost accounting, t three types of cost behavior are most common (("Cost Behavior Patterns", 2020).
Variable costing, fix costing, and mix requiring are types. In variable cost, the cost is directly proportional to the activity, and as the activity increases, the value also increases. And the opposite is too exact (Graybeal, Franklin & Cooper, 2020).
Fixed costs, as the name indicates, are the costs that do not change when the activity is increased or decreased. The price is not affected by the production or any event. Mixed costs are a combination of fixed and variable expenses partially (Lakmal, 2014).
The management team must understand how cost behavior is crucial for planning and controlling the cost of organization activity with an analysis of the damage to volume profit. To design a budget for a business, studying the effects of cost change in the activity level showcases how much profit can be generated (Popesko & Novák, 2014).
Process costing
In process costing, the cost is assigned to the process of manufacturing each unit of production. In this, the price of each unit is assumed to be the same. This type of costing is commonly used where the production of goods takes place at a mass level. The costs are not distinguished easily when it is linked to individual units ("Types of Costs by Behavior", 2020).
Weighted average cost, first in first out, and standard charge are the different types of costing process. In process costing, costs are built over a fixed duration and then are assigned to units of production at a specific time frame ("What Are Cost Behavior Patterns?", 2020).
A company that is owned by Mark and Perk produces the machines in a batch. The setup cost per batch is $2300. $3 is the variable cost A let units for 1-13000. Another variable cost per unit that is more than 13000 is $7. The fixed cost initially js $12000. For every 10,000 units, the cost of the additional fire is $3000. Determine the total cost for the company with the 13,600 units produced in 10 batches.
Total cost= $2300*10+$3*13,600+$12000
=$75800
References
Cost Behavior Patterns. (2020). Retrieved 7 June 2020, from https://saylordotorg.github.io/text_managerial-accounting/s09-01-cost-behavior-patterns.html
Graybeal, P., Franklin, M., & Cooper, D. (2020). Identify and Apply Basic Cost Behavior Patterns. Retrieved 7 June 2020, from https://opentextbc.ca/principlesofaccountingv2openstax/chapter/identify-and-apply-basic-cost-behavior-patterns/
Lakmal, D. (2014). Cost Analysis for Decision Making and Control: Marginal Costing versus Absorption Costing. SSRN Electronic Journal. doi: 10.2139/ssrn.
This document discusses cost concepts relevant for production planning and decision making. It defines different types of costs such as explicit vs implicit costs, direct vs indirect costs, private vs social costs, relevant vs irrelevant costs, economic vs accounting costs, separable vs common costs, and fixed vs variable costs. It also explores the relationship between production and costs, discussing how cost functions are related to production functions and how average and marginal costs are related to average and marginal products. Short-run cost functions are examined, showing how total, average, and marginal costs change at different output levels when some factors are fixed in the short-run.
Nature And Theories In Management AccountingLisa Williams
This document discusses cost accounting, its role, and ethical considerations. It begins by defining cost accounting as a subset of managerial accounting that helps determine and accumulate product, process, or service costs. It then discusses the role of cost accounting in planning, decision making, and performance evaluation. Finally, it discusses some ethical issues that can arise in cost accounting, such as lack of understanding leading to manipulation, and the need to provide truthful information to users. It also briefly compares absorption and variable costing approaches.
Target costing and its in reducing the cost comparison at industrial companiIAEME Publication
This document discusses target costing and its role in reducing costs for industrial companies. It provides an abstract that outlines analyzing costing and cost reduction methods for construction firms in Libya. The document then reviews literature on target costing, describing it as a cost management tool used to reduce product costs over the entire lifecycle. It discusses principles of target costing like being price-led, focusing on customers and design, involving cross-functional teams, taking a lifecycle orientation, and engaging the value chain. The document also examines how most product costs are determined at the design stage, and how techniques like Lean Six Sigma, Just-in-Time production and Total Quality Management can help reduce waste and costs.
Cost accounting is a process that collects, records, analyzes, and evaluates costs to advise management on the most cost-efficient course of action. It originated during the Industrial Revolution to help managers understand complex business costs. Costs are classified as either variable, meaning they change with production volume, or fixed, remaining constant regardless of production levels. Key cost objects include direct materials, direct labor, and manufacturing overhead. Analyzing these cost objects allows for more accurate cost calculation and identification of inefficient activities to improve cost efficiency.
The document discusses cost allocation and its importance for decision making. Cost allocation involves identifying and assigning costs, like overhead, to products and services. There are different cost allocation methods, like step allocation and reciprocal allocation, that allocate costs between departments. Absorption costing includes both variable and fixed costs as product costs, while variable costing only includes variable costs. Proper cost allocation provides accurate cost information for decision making around pricing, costs, and resource utilization.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document discusses total cost of ownership (TCO) and how it can affect firm profitability. TCO is a cost accounting tool that considers all direct and indirect costs associated with acquiring, using, and disposing of a product or service over its lifetime. Using TCO helps companies select optimal suppliers, reduce budget risks, and use resources more effectively. Considering total costs rather than just purchase price can improve decision making and increase profits. The document also compares TCO to other cost models and outlines some benefits and challenges to implementing a TCO approach.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document summarizes a research study that examines how using a total cost of ownership (TCO) approach to supplier selection can help companies improve profitability. The study uses a case study of a computer company with three potential suppliers (A, B, C) to calculate the TCO for each supplier. It finds that although supplier A has the lowest purchase price, suppliers B and C have lower total costs when indirect costs are considered. Selecting supplier C results in the highest gross and net profit margins for the company. The study concludes that considering total costs rather than just purchase price through a TCO framework can help optimize supplier selection and positively impact company profitability.
The document discusses various tools for developing adaptive scenarios, including PESTEL analysis and value chain analysis. PESTEL analysis examines political, economic, social, technological, environmental, and legal factors that may impact a business. Value chain analysis breaks down a business into primary and support activities to identify areas for competitive advantage through cost leadership or differentiation. The document also discusses Porter's generic strategies of cost leadership, differentiation, and focus, which involve targeting the entire market with low prices, unique attributes, or specific segments respectively.
Here are the key elements of cost:
Direct Materials: Cost of raw materials that are directly used in manufacturing the product.
Direct Labour: Wages paid to workers who are directly involved in production.
Direct Expenses: Other expenses directly attributable to production such as consumables, utilities etc.
Factory Overhead: Indirect costs of running the factory like rent, depreciation, maintenance etc.
Selling & Distribution Overhead: Expenses related to selling, delivery and distribution of products.
Administrative Overhead: Expenses related to managerial activities like salaries of managers, office expenses etc.
Prime Cost = Direct Materials + Direct Labour
Works Cost = Prime Cost + Direct Ex
economics ppt for btech and basic introduction to engineeringCITDiplomaMadhyamgra
The document discusses key economic concepts related to costs and revenues for businesses. It defines variable costs as costs that change with production quantity, such as materials and labor, while fixed costs do not change. Marginal cost is the change in total cost from producing one more unit, and is used to determine the optimal production quantity where marginal cost equals marginal revenue. Marginal revenue is the change in total revenue from selling one more unit, and may decrease with higher production in imperfectly competitive markets as price must fall to sell additional units. Together, comparing marginal cost and marginal revenue helps businesses maximize profits.
Classmate ALearning OutcomesIn Chapters 5 and 6, we haveVinaOconner450
Classmate A
Learning Outcomes
In Chapters 5 and 6, we have learned about the cost behavior patterns and process costing in an organization. It considered that the cost behavior patterns and process costing in accounting decisions. Cost behavior patterns define how the organization and operating expenditures change or remain the same through dissimilar events. Practices can be changed, particularly while changing the production levels or sales volume within a business. It may rise in fixed, variable, and mixed expenditures. For example, let's assume that the cost of direct material of a bike company for each bike is $40. If the motorcycle unrestricted made one bike, the total variable price for natural materials is around $40. If the bike company made two bikes, the total variable cost becomes double that is $80. It shows that the variable cost mainly changes in percentage to change in the volume of activity. If the production becomes double, then total variable cost also double, and the cost per unit remains similar. The term variable costs must define the full price with the variations in activities, not the price per unit.
In chapter 8, we also learned about how united airlines fight to regulate costs. United Airlines is considered the second primary air carrier in the world. The industry study that the airlines had high fixed prices, making it hard for the business to cut prices rapidly in line with its deduction in income. It also shows that there is difficulty in finding the fixed costs. The fixed expenses are a significant element of total operating expenditures, making it hard for airlines to create short-term cuts in spending when income reduces. It seems that the variable, fixed, and mixed expenses are essential for quick decision-making and are used for a particular period. The appropriate variety is the range of actions for which cost behavior patterns are like to be correct.
In chapter 9 it has been discussed the process costing in production costs. Process costing is an introductory section in production costs because process costing defines the price of each product made as similar to the price of every other product. It seems that a desk company produces desks, and it maintains a benefit over it that their participants made desks in large quantities, that is 4000 to 8000 desks per month, with the help of globally accepted designs. It permits the business to purchase material in bulk, which results in a discount on costs from suppliers. The same desk is made for all the consumers; as a result, desk products can limit the production procedure to two processing sections: assembly and finished. New participants recently started producing the same desk, and the desk company worried whether the desk production price is reasonable. The above example shows that it is hard to make the production process successful without proper technique costing.
The managers can use cost behavior patterns while making decisions because it helps ...
MARGIN & PROFIT sangat penting dalam sebuah perusahaanUmarUmar574494
This document discusses key business concepts related to margins, profits, costs, and pricing. It defines margins as the difference between selling price and production costs, and explains how margins are calculated and their importance in business. Variable costs change with production volume, while fixed costs remain constant. The document also covers break-even analysis, contribution analysis, and factors that influence target volumes. Marketing spending is divided into total, fixed, and variable categories. Overall, the key to business success is effectively analyzing costs and implementing strategies to optimize margins and profits over the long run.
The document discusses product proliferation, which is when organizations market many variations of the same products through different colors, sizes, and uses. While this diversity can help firms capture market share, it can also waste economic resources and confuse consumers. The document also discusses cost leadership strategies, product bundling, and economies of scope. Product bundling involves offering multiple products together as one combined product, while economies of scope are cost advantages from providing a variety of products rather than specializing in one. Finally, the document outlines the value chain concept and primary and support activities in value chain analysis.
The document discusses product proliferation and strategic leadership. It provides examples of companies that offer many variations of products through different sizes, colors, and uses. This allows companies to target different market segments but can also confuse consumers. The document then discusses 11 characteristics of strategic leaders, including having a clear long-term vision, articulating their business model, commitment, being well-informed, willingness to delegate, astute use of power, emotional intelligence, balancing present and future needs, influencing rather than dominating, managing in both good and bad times, and anticipating and managing chaos.
The term ‘cost’ has a wide variety of meanings. Different people use this term in different senses for different purposes. For example, while buying a book, you generally ask, “how much does it cost”? Here the cost means price.
The costing terminology of the Institute of Cost and Works Accountants,London defines cost as “the amount of expenditure incurred on or attributable to a given thing”.
Costing is the technique and process of ascertaining costs. In simple words costing is a systematic procedure of determining the unit cost of product/service.
This document discusses profit analysis and break-even analysis. It defines accounting profit and economic profit, explaining that economic profit includes both explicit and implicit costs. Short-run profit is maximized using fixed inputs, while long-run profit allows variable inputs to change. Break-even analysis determines the sales volume needed for total revenue to equal total costs. The key components of profit analysis and assumptions of break-even analysis are described. Approaches to measuring profits and uses of break-even analysis are also summarized.
Cost accounting has developed to meet the managerial needs of modern businesses. It is a formal system to ascertain and control product and service costs through accounting. This information helps management with analysis, control, and decision-making. Cost accounting is used in both profit and non-profit organizations. It facilitates presenting cost information to management to aid their decision-making.
This document discusses cost-output relationships in the short run and long run, as well as the law of diminishing marginal utility. It defines short run and long run, and explains how in the short run fixed costs remain constant while variable costs and total costs change with output. Average and marginal costs are also discussed. In the long run, all factors are variable and costs are analyzed using total, average and marginal cost curves. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from additional units decreases.
11.sales forecast by taking the concept of blue ocean theory using mat lab pr...Alexander Decker
This document summarizes a journal article about using Blue Ocean Theory and Matlab programming to forecast sales. It discusses key concepts from Blue Ocean Theory like red oceans representing existing competitive industries and blue oceans representing new market space. It also covers managerial analysis techniques like break-even analysis, capital asset pricing models, and calculating profit. The conclusion states that introducing new growing sectors using Blue Ocean Theory and Matlab programming allows assessing break-even points, profits/losses, and capital asset prices to determine how products will impact market trends.
This document provides an overview of economics concepts for engineers, including:
1. Economic decision making involves factors like price, availability, and quality of raw materials. Life cycle costing adds up all costs of an asset over its lifetime.
2. Fixed costs do not change with production levels, like rent or insurance. Variable costs change based on production, like materials.
3. Opportunity cost is the potential benefit missed from choosing one alternative over another. It represents the return that could have been earned by taking the next best alternative.
4. Life cycle costing adds up all costs associated with an asset from purchase to disposal, excluding salvage value. It provides a more accurate total cost estimate than initial
The document provides an overview of various cost analysis concepts for entrepreneurs, including defining key terms like cost centers, cost units, cost accounting, costing, and the principles of cost accounting. It also discusses the differences between cost accounting and financial accounting, concepts like marginal costing, variable costs, contribution, and break-even analysis.
Nature And Theories In Management AccountingLisa Williams
This document discusses cost accounting, its role, and ethical considerations. It begins by defining cost accounting as a subset of managerial accounting that helps determine and accumulate product, process, or service costs. It then discusses the role of cost accounting in planning, decision making, and performance evaluation. Finally, it discusses some ethical issues that can arise in cost accounting, such as lack of understanding leading to manipulation, and the need to provide truthful information to users. It also briefly compares absorption and variable costing approaches.
Target costing and its in reducing the cost comparison at industrial companiIAEME Publication
This document discusses target costing and its role in reducing costs for industrial companies. It provides an abstract that outlines analyzing costing and cost reduction methods for construction firms in Libya. The document then reviews literature on target costing, describing it as a cost management tool used to reduce product costs over the entire lifecycle. It discusses principles of target costing like being price-led, focusing on customers and design, involving cross-functional teams, taking a lifecycle orientation, and engaging the value chain. The document also examines how most product costs are determined at the design stage, and how techniques like Lean Six Sigma, Just-in-Time production and Total Quality Management can help reduce waste and costs.
Cost accounting is a process that collects, records, analyzes, and evaluates costs to advise management on the most cost-efficient course of action. It originated during the Industrial Revolution to help managers understand complex business costs. Costs are classified as either variable, meaning they change with production volume, or fixed, remaining constant regardless of production levels. Key cost objects include direct materials, direct labor, and manufacturing overhead. Analyzing these cost objects allows for more accurate cost calculation and identification of inefficient activities to improve cost efficiency.
The document discusses cost allocation and its importance for decision making. Cost allocation involves identifying and assigning costs, like overhead, to products and services. There are different cost allocation methods, like step allocation and reciprocal allocation, that allocate costs between departments. Absorption costing includes both variable and fixed costs as product costs, while variable costing only includes variable costs. Proper cost allocation provides accurate cost information for decision making around pricing, costs, and resource utilization.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document discusses total cost of ownership (TCO) and how it can affect firm profitability. TCO is a cost accounting tool that considers all direct and indirect costs associated with acquiring, using, and disposing of a product or service over its lifetime. Using TCO helps companies select optimal suppliers, reduce budget risks, and use resources more effectively. Considering total costs rather than just purchase price can improve decision making and increase profits. The document also compares TCO to other cost models and outlines some benefits and challenges to implementing a TCO approach.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document summarizes a research study that examines how using a total cost of ownership (TCO) approach to supplier selection can help companies improve profitability. The study uses a case study of a computer company with three potential suppliers (A, B, C) to calculate the TCO for each supplier. It finds that although supplier A has the lowest purchase price, suppliers B and C have lower total costs when indirect costs are considered. Selecting supplier C results in the highest gross and net profit margins for the company. The study concludes that considering total costs rather than just purchase price through a TCO framework can help optimize supplier selection and positively impact company profitability.
The document discusses various tools for developing adaptive scenarios, including PESTEL analysis and value chain analysis. PESTEL analysis examines political, economic, social, technological, environmental, and legal factors that may impact a business. Value chain analysis breaks down a business into primary and support activities to identify areas for competitive advantage through cost leadership or differentiation. The document also discusses Porter's generic strategies of cost leadership, differentiation, and focus, which involve targeting the entire market with low prices, unique attributes, or specific segments respectively.
Here are the key elements of cost:
Direct Materials: Cost of raw materials that are directly used in manufacturing the product.
Direct Labour: Wages paid to workers who are directly involved in production.
Direct Expenses: Other expenses directly attributable to production such as consumables, utilities etc.
Factory Overhead: Indirect costs of running the factory like rent, depreciation, maintenance etc.
Selling & Distribution Overhead: Expenses related to selling, delivery and distribution of products.
Administrative Overhead: Expenses related to managerial activities like salaries of managers, office expenses etc.
Prime Cost = Direct Materials + Direct Labour
Works Cost = Prime Cost + Direct Ex
economics ppt for btech and basic introduction to engineeringCITDiplomaMadhyamgra
The document discusses key economic concepts related to costs and revenues for businesses. It defines variable costs as costs that change with production quantity, such as materials and labor, while fixed costs do not change. Marginal cost is the change in total cost from producing one more unit, and is used to determine the optimal production quantity where marginal cost equals marginal revenue. Marginal revenue is the change in total revenue from selling one more unit, and may decrease with higher production in imperfectly competitive markets as price must fall to sell additional units. Together, comparing marginal cost and marginal revenue helps businesses maximize profits.
Classmate ALearning OutcomesIn Chapters 5 and 6, we haveVinaOconner450
Classmate A
Learning Outcomes
In Chapters 5 and 6, we have learned about the cost behavior patterns and process costing in an organization. It considered that the cost behavior patterns and process costing in accounting decisions. Cost behavior patterns define how the organization and operating expenditures change or remain the same through dissimilar events. Practices can be changed, particularly while changing the production levels or sales volume within a business. It may rise in fixed, variable, and mixed expenditures. For example, let's assume that the cost of direct material of a bike company for each bike is $40. If the motorcycle unrestricted made one bike, the total variable price for natural materials is around $40. If the bike company made two bikes, the total variable cost becomes double that is $80. It shows that the variable cost mainly changes in percentage to change in the volume of activity. If the production becomes double, then total variable cost also double, and the cost per unit remains similar. The term variable costs must define the full price with the variations in activities, not the price per unit.
In chapter 8, we also learned about how united airlines fight to regulate costs. United Airlines is considered the second primary air carrier in the world. The industry study that the airlines had high fixed prices, making it hard for the business to cut prices rapidly in line with its deduction in income. It also shows that there is difficulty in finding the fixed costs. The fixed expenses are a significant element of total operating expenditures, making it hard for airlines to create short-term cuts in spending when income reduces. It seems that the variable, fixed, and mixed expenses are essential for quick decision-making and are used for a particular period. The appropriate variety is the range of actions for which cost behavior patterns are like to be correct.
In chapter 9 it has been discussed the process costing in production costs. Process costing is an introductory section in production costs because process costing defines the price of each product made as similar to the price of every other product. It seems that a desk company produces desks, and it maintains a benefit over it that their participants made desks in large quantities, that is 4000 to 8000 desks per month, with the help of globally accepted designs. It permits the business to purchase material in bulk, which results in a discount on costs from suppliers. The same desk is made for all the consumers; as a result, desk products can limit the production procedure to two processing sections: assembly and finished. New participants recently started producing the same desk, and the desk company worried whether the desk production price is reasonable. The above example shows that it is hard to make the production process successful without proper technique costing.
The managers can use cost behavior patterns while making decisions because it helps ...
MARGIN & PROFIT sangat penting dalam sebuah perusahaanUmarUmar574494
This document discusses key business concepts related to margins, profits, costs, and pricing. It defines margins as the difference between selling price and production costs, and explains how margins are calculated and their importance in business. Variable costs change with production volume, while fixed costs remain constant. The document also covers break-even analysis, contribution analysis, and factors that influence target volumes. Marketing spending is divided into total, fixed, and variable categories. Overall, the key to business success is effectively analyzing costs and implementing strategies to optimize margins and profits over the long run.
The document discusses product proliferation, which is when organizations market many variations of the same products through different colors, sizes, and uses. While this diversity can help firms capture market share, it can also waste economic resources and confuse consumers. The document also discusses cost leadership strategies, product bundling, and economies of scope. Product bundling involves offering multiple products together as one combined product, while economies of scope are cost advantages from providing a variety of products rather than specializing in one. Finally, the document outlines the value chain concept and primary and support activities in value chain analysis.
The document discusses product proliferation and strategic leadership. It provides examples of companies that offer many variations of products through different sizes, colors, and uses. This allows companies to target different market segments but can also confuse consumers. The document then discusses 11 characteristics of strategic leaders, including having a clear long-term vision, articulating their business model, commitment, being well-informed, willingness to delegate, astute use of power, emotional intelligence, balancing present and future needs, influencing rather than dominating, managing in both good and bad times, and anticipating and managing chaos.
The term ‘cost’ has a wide variety of meanings. Different people use this term in different senses for different purposes. For example, while buying a book, you generally ask, “how much does it cost”? Here the cost means price.
The costing terminology of the Institute of Cost and Works Accountants,London defines cost as “the amount of expenditure incurred on or attributable to a given thing”.
Costing is the technique and process of ascertaining costs. In simple words costing is a systematic procedure of determining the unit cost of product/service.
This document discusses profit analysis and break-even analysis. It defines accounting profit and economic profit, explaining that economic profit includes both explicit and implicit costs. Short-run profit is maximized using fixed inputs, while long-run profit allows variable inputs to change. Break-even analysis determines the sales volume needed for total revenue to equal total costs. The key components of profit analysis and assumptions of break-even analysis are described. Approaches to measuring profits and uses of break-even analysis are also summarized.
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1. VILNIUS GEDIMINAS TECHNICAL UNIVERSITY
FACULTY OF BUSINESS MANAGEMENT
DEPARTMENT OF FINANCE ENGINEERING
COURSE PROJECT
High quality running shoes of French company
The calculation of price: involving cost analysis and break-even
method.
Student: Gabriel Delacroix VVfuc-14
Academic supervisor: dr. Indrė Lapinskaitė
Vilnius, 2016
2. 2
Table of Contents
Introduction.......................................................................................................................................... 3
1. Theoretical aspects of pricing .......................................................................................................... 4
1.1 Definitions................................................................................................................................... 4
1.2 Methods of pricing...................................................................................................................... 6
2. Practical part .................................................................................................................................. 10
2.1 Description of the analysed company ....................................................................................... 10
2.2 Brief explanation of the product ............................................................................................... 10
2.3 Description of the industry in which the company operate ...................................................... 13
3. Setting the goals of pricing ............................................................................................................ 16
4. The principles of pricing of analysed product (service)............................................................. 17
4.1. The calculation of BtoB price under EXW conditions of the same product ...................... 17
4.2. The calculation of selling price for a customer/enduser of the same product .................... 20
4.3. The calculation of a price with break even method ............................................................ 22
5. Existing company’s pricing for discounts .............................................................................. 24
Conclusion......................................................................................................................................... 25
References.......................................................................................................................................... 26
3. 3
Introduction
During this course project, we will study the case of a company which produce high quality running
shoes. The study will focus on the strategy of pricing used for this specific product, with the help of
the course we had, and researches made. I have choose high running shoes because it’s an area I am
familiar with, which means I knew the price and the brands, but also I had an idea about the strategy
of companies. For the project I did previous researches on the fabrication of shoes, their composition
and the price of the materials composite it. I also made several researches about shoes factory in
general.
In a first part, we will introduce the theory, which will be a necessary background knowledge for the
good understanding of the project. The theory will explain several aspects and vocabulary that will
be then used in the practical part.
In the second part, we will interest in the practical aspect of the project. To this end, we will describe
the company and the product, then do a review of the market and the competitors. Then, we will
calculate the price of BtoB, BtoC and then calculate the break-even point. Finally we will talk about
discounts and features.
4. 4
1. Theoretical aspects of pricing
1.1 Definitions
Price
Price is the value that is put to a product or service and is the result of a complex set of calculations,
research and understanding and risk taking ability. (The Economic Times, 2016)
Cost
Costs can be viewed as the total amount paid by a firm for the factors of production it uses,
such as labour, in the productive process. It is important when considering costs to distinguish
between the accountant’s and the economist’s method of measurement. The accountant measures
historical cost which is the price originally paid for the factors of production whereas the economist
measures the opportunity cost. (Ison & Wall, 2007)
Revenue
In accounting, revenue is the income that a business has from its normal business activities, usually
from the sale of goods and services to customers. Revenue is also referred to as sales or turnover.
Some companies receive revenue from interest, royalties, or other fees. (Carcello, 2008)
BtoB
The products and services of the business are marketed to other businesses. Examples include
advertising agencies, web hosting and graphic design services, office furniture manufacturers and
landlords who lease office and retail space. Business to business relationships are developed and
ongoing, and the sales processes involved take longer than business-to-consumer relationships. B2B
decision making may take place at more than one level. For instance, the salesperson meets with the
departmental manager, who then has to get approval from the business owner before the sale is closed.
Emotions have no place in B2B sales. (Jensen, 2016)
BtoC
Business to consumer (B2C) is business or transactions conducted directly between a company and
consumers who are the end-users of its products or services. The business-to-consumer as a business
model differs significantly from the business-to-business model, which refers to commerce between
two or more businesses. While most companies that sell directly to consumers can be referred to as
5. 5
B2C companies, the term became immensely popular during the dotcom boom of the late 1990s,
when it was used mainly to refer to online retailers, as well as other companies that sold products and
services to consumers through the internet. (Investopedia, 2016)
Break-even point
In economics and business, specifically cost accounting, the break-even point (BEP) is the point at
which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even."
A profit or a loss has not been made, although opportunity costs have been "paid," and capital has
received the risk-adjusted, expected return. (Levine, David & Boldrin, 2008)
At accounting break-even, net income (NI) is zero, so Operating Cash Flow (OCF) equals the periodic
depreciation expense. Substituting this into the general break-even (Q*) formula, we obtain
accounting break-even quantity
𝑄( 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔) =
𝐹𝐶 + 𝐷𝑒𝑝
𝑝 − 𝑉𝐶
The denominator 𝑝 − 𝑉𝐶 is called the contribution margin. The accounting break-even quantity is
given by the sum of the fixed cost and depreciation divided by the contribution margin. Accounting
break-even tells us how much product must be sold so that the firm’s overall accounting profits are
not reduced. (Lee & Lee, 2013)
Packaging
Packaging is the technology of enclosing or protecting products for distribution, storage, sale, and
use. Packaging also refers to the process of designing, evaluating, and producing packages. Packaging
can be described as a coordinated system of preparing goods for transport, warehousing, logistics,
sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells. (Soroka,
2002)
Wholesaling
Wholesaling, jobbing, or distributing is the sale of goods or merchandise to retailers; to industrial,
commercial, institutional, or other professional business users; or to other wholesalers and related
subordinated services. (Kunz, 2005)
6. 6
Value-add tax
A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is
added at a stage of production and at final sale. VAT is most often used in the European Union. The
amount of VAT that the user pays is the cost of the product, less any of the costs of materials used in
the product that have already been taxed. (Investopedia, 2016)
Mark-up
Markup is the difference between the cost of a good or service and its selling price. Markup can be
expressed as a fixed amount or as a percentage of the total cost or selling price. (Ingels, 2009)
A markup is added onto the total cost incurred by the producer of a good or service in order to cover
the costs of doing business and create a profit. The total cost reflects the total amount of both fixed
and variable expenses to produce and distribute a product. (Pradhan, 2007)
1.2 Methods of pricing
Full cost pricing
This is a practice where the price of a product is calculated by a firm on the basis of its direct costs
per unit of output plus a markup to cover overhead costs and profits. The overhead costs are
generally calculated assuming less than full capacity operation of a plant in order to allow for
fluctuating levels of production and costs. Full cost pricing is often used by firms as it is very difficult
to calculate the precise demand for a product and establish a market price. Empirical studies
indicate that full cost pricing methods are widely employed by business firms. (Khemani &
Shapiro, 1993)
Cost-plus pricing
Cost-plus pricing is a pricing strategy in which the selling price is determined by adding a specific
dollar amount markup to a product's unit cost. Mark ups are when you add a % to the cost to set the
price. (Petersen, Jain & Lewis, 2006)
In cost-plus pricing, a company first determines its break-even price for the product. This is done by
calculating all the costs involved in the production, marketing and distribution of the product. Then
a markup is set for each unit, based on the profit the company needs to make, its sales objectives and
the price it believes customers will pay. For example, if the company needs a 15 percent profit margin
and the break-even price is $2.59, the price will be set at $2.98 ($2.59 x 1.15). (Magloff, 2016)
7. 7
Absorption costing
Absorption costing is defined as a method for accumulating the costs associated with a production
process and apportioning them to individual products. This type of costing is required by the
accounting standards to create an inventory valuation that is stated in an organization's balance sheet.
A product may absorb a broad range of fixed and variable costs. These costs are not recognized as
expenses in the month when an entity pays for them. Instead, they remain in inventory as an asset
until such time as the inventory is sold; at that point, they are charged to the cost of goods sold.
(Accounting tools, 2016)
Target pricing
It’s a pricing method that involves identifying the price at which a product will be competitive in the
marketplace, defining the desired profit to be made on the product, and computing the target cost for
the product by subtracting the desired profit from the competitive market price.
𝑇𝑎𝑟𝑔𝑒𝑡 𝑐𝑜𝑠𝑡 =
𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
1 + 𝑀𝑎𝑟𝑘𝑢𝑝
Target cost is then given to the engineers and product designers, who use it as the maximum cost to
be incurred for the materials and other resources needed to design and manufacture the product. It is
their responsibility to create the product at or below its target cost. (Shim, Siegel, Dauber, & Qureshi,
2014)
Marginal pricing
Marginal pricing is when a business sells a product at a price that covers its manufacturing costs but
not its overhead. The benefit of marginal pricing is that the lower price point increases customer
demand. The increased demand, in theory, should bring in revenues comparable to those when the
product carried a higher price and lower demand. Small businesses can use this practice for a short-
term revenue boost.
For example: The travel industry often employs marginal pricing to fill capacity. Hotels, airlines and
resorts must achieve a minimum capacity to sustain a profit. Not only do these agencies fail to bring
in revenue whenever they are underbooked, they lose money in maintenance costs and staff salaries.
The travel web site Priceline.com enabled users to name their own price for their travel needs. The
bid process allows airlines to sell empty seats and hotels to fill empty rooms, even if the bid price was
far lower than the retail price. (Hanks, 2016)
Break even pricing
Break-even price is the price a company must sell its product at given a particular volume of
production. Calculating the break-even price helps the company determine the price it will need to
8. 8
charge for its products. It also helps the company plan its future production. To calculate break-even
price, the company needs to know its total fixed costs, the volume of production and the variable
costs per unit. The total fixed costs are costs that do not change with the level of production. Variable
costs, on the other hand, do change with the level of production. (McBride, 2016)
Retail pricing
The sale of goods from fixed points (malls, department stores, supermarkets and so on) to the
consumer in small quantities for his own consumption is called as retail. According to the concept of
retailing, a retailer doesn’t sell products in bulk; instead sells the merchandise in small units to the
end-users. (Management study guide, 2016)
Retailing describes a selling pattern with an announced price that is maintained for some period of
time. The seller agrees implicitly to sell to the first person (or in the case of non-unique goods, to any
person) who comes along and is willing to pay that price. (Lazear & Moore, 1984)
Value based pricing
This focuses on the price you believe customers are willing to pay, based on the benefits your business
offers them. Value-based pricing depends on the strength of the benefits you can prove you offer to
customers. If you have clearly-defined benefits that give you an advantage over your competitors,
you can charge according to the value you offer customers. While this approach can prove very
profitable, it can alienate potential customers who are driven only by price and can also draw in new
competitors. (Businesslink, 2012)
Competition based pricing
Competitive pricing consists of setting the price at the same level as one’s competitors. This method
relies on the idea that competitors have already thoroughly worked on their pricing. In any market,
many firms sell the same or very similar products, and according to classical economics, the price for
these products should, in theory, already be at an equilibrium (or at least at a local equilibrium).
Therefore, by setting the same price as its competitors, a newly-launched firm can avoid the trial and
error costs of the price-setting process. However, every company is different and so are its costs.
Considering this, the main limit of the competitive pricing method is that it fails to account for the
differences in costs (production, purchasing, sales force, etc.) of individual companies. As a result,
this pricing method can potentially be inefficient and lead to reduced profits. (Grasset, 2015)
Price skimming
Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or
service at first, then lowers the price over time. (Dean, 1976)
9. 9
The objective of a price skimming strategy is to capture the consumer surplus early in the product life
cycle in order to exploit a monopolistic position or the low price sensitivity of innovators. If an early-
adopter segment is willing to pay a premium for a product, the company that makes it may wish to
consider a high release price to capture the extra value, with planned reductions down the road to
attract latecomers. Along with capturing more revenue over the life of a product, this strategy can
also help companies match demand to production capacity for a new product. (Marn, Roegner &
Zawada, 2003)
For products that represent a drastic departure from accepted ways of performing a service, a policy
of relatively high prices coupled with heavy promotional expenditures in the early stages of market
development (and lower prices at later stages) has proved successful for many products. (Dean, 1976)
Psychological pricing
It is a pricing based on the theory that certain prices have a psychological impact. Retail prices are
often expressed as "odd prices": a little less than a round number for example 99,99€. Consumers
tend to perceive “odd prices” as being significantly lower than they actually are, tending to round to
the next lowest monetary unit. (Bizer & Schindler, 2005)
10. 10
2. Practical part
2.1 Description of the analysed company
The company will be, according to French legal form, a SAS, which stand for “Société par action
simpliées” (company with simplified joint-stocks). It is both a company of capital and a company of
person which made it hybrid. It is a very flexible legal form that allow the director of the company to
have more liberty than anonymous company. It allows third party to invest in the company and have
shares in it. It also allows an associate to have power and prerogatives independent from his capital
in the company. This legal form is well adapted for companies that want to develop fast and
internationally, such as start-up or mid-size companies. That is why I choose this legal form, because
it is the most indicated for this kind of company, that want to develop fast and compete in a market
made of big international companies with big capitals.
The company will be selling high quality running shoes, made out of high quality materials, mainly
polymers that will be eco labelled and from innovative subcontractors specialized in such materials
(my researches show me that most of shoes brand buy their materials from big innovative chemical
companies that can provide good quality materials with precise physical and chemical properties
aimed for running shoes).
The company will create the shoes from raw materials, from cutting and shaping to assembling.
2.2 Brief explanation of the product
Outsole
The outsole makes up the base of the running shoe. It is made out resistant, generally black carbon
rubber. It has to have great cushioning and grip qualities on a range of surfaces, wet or dry. But it also
has to be very durable, so runners can run longer in the same shoes. (Asics, 2016)
Midsole
The midsole is a layer of spongy material between the outsole and the upper. EVA is the most
common material for midsole and one with high innovative research. These cushioning materials
must combine bounce and durability, and yet be lightweight enough for longer runs. . (Asics, 2016)
11. 11
Insole (sockliner)
The insole is the first layer of soft foam which your foot rests on inside the running shoe. I t needs
cushioning to make sure your foot fits comfortably inside the shoe. Most sockliners are removable,
making them easy to clean or customise. . (Asics, 2016)
Upper
The upper is the top part of the shoe, designed to firmly hold your foot in place inside the shoe. It’s
composed of the heel counter, the heel collar, the eyelet, the tongue and the sockliner. (Asics, 2016)
NB : We won’t talk about the lasting, which will be include in the midsole for the decomposition of
materials.
Figure 1 : Picture of analysed product (source: Anatomy of a shoe, asics.com)
12. 12
About sustainable materials
We will primarily focus on the sing of sustainable cotton, recycled polyester, recycled nylon, recycled
polystyrene, and leather with a traceability to insure it come from animal that have been well treated
and are not endangered. Our model will be Adidas which use this kind of materials.
We are using recycled PES. Using more sustainable materials such as recycled polyester is one way
we seek to improve our environmental footprint while still making high performance products for the
athlete. Recycled polyester (PES) is a synthetic fibre based on post-consumer waste, such as plastic
bottles and used garments. The raw material is reprocessed and spun into fibres. Using recycled PES
has many benefits over virgin polyester that is made from petroleum. It helps us reduce our
dependency on petroleum, allows us to discharge less waste and and reduces toxic emissions from
incinerators. We commissioned the first so-called "life cycle assessment" of recycled polyester which
demonstrated its environmental benefits over virgin polyester. We are currently looking at alternative
sources of recycled polyester and continuing to explore how we can use it across more of our product
categories. (Adidas, 2016)
Standard nylon is made from petroleum. Recycled nylon is made from post-industrial and post-
consumer waste, including discarded industrial fishing nets that are sometimes left in the ocean.In
general, using recycled nylon has many benefits over standard nylon: it helps reduce our dependence
on petroleum and allows us to discharge less waste, contributing to a reduction in toxic emissions
from incinerators that would otherwise be needed for waste disposal. (Adidas, 2016)
For example, the supplier ‘framas’ has developed a new sustainable material to be used in the heel
counters of adidas footwear products. The heel counter is a little insert in the heel area of the shoe; it
is rigid so that it supports and stabilises the wearer’s heel inside the shoe. It is not possible to see the
heel counter though; it's internal and covered on both sides by material. The new heel counter, called
Framaprene® ECO, contains more than 50% recycled content made of old food packaging. (Adidas,
2016)
We will not source raw materials from any endangered or threatened species, as defined by the
International Union for Conservation of Nature and Natural Resources (IUCN) in its red list. And we
will not use leathers from animals that have been inhumanely treated, whether these animals are wild
or farmed.
13. 13
2.3 Description of the industry in which the company operate
The industry of running shoes is very wide and constantly expanding as studies show that in France
for example, the average number or runner is growing, while the sale of running shoes is constantly
growing too. The population of runners increase in average 29% each year between 2010 to 2015. In
2013, 8.5 millions of runners running at least once a month were record. This number is progressively
increasing. If we look at numbers of end of 2015 (16,5 millions of runners in France), the runner
population will almost have doubled in only 3 years. In 2011, the turnover of running shoes market
was about 350 millions of euros for French market. This number supposedly reach 805 millions of
euros according a study of Sportlab.
A study from NPD Group clearly show a positive tendency on running sport : on the last semester of
2014, the sells of running products are growing in an average of 14,8% : a growing of 13% of sells
of female running products and 16% of male products. In 2015 the market grown of 69,4%.
Runners are looking for technically performing product, that is why the sells of high en running shoes
costing more than 100 euros exploded on the market (+43% of sells end of august 2014 compared to
the same period of 2013 for this category). (fitmyrun, 2015)
Running is the third discipline the most practiced in France behind swimming and fitness.
To increase their performance, running do not hesitate no more to spend close to 170 euros in a high-
tech pair of running shoes. 9 millions of pair of shoes have been sold in 2014. (Achache, 2016)
The running shoes market do not stop to only runners. 42% are admitting that they can wear running
shoes outside of the running practice. They are more than in 2014 to declare that running of is a trend
accessory: 39% in 2016 vs 30% in 2014. (Alain, 2016)
The market of running shoes is shared by few big sport companies, either general sport companies or
more specific for running.
14. 14
Figure 2 : % of online market share by spending (source in picture)
Figure 3 : % of running footwear sales market share in USA 2012 (source in picture)
With over 50% market share online and offline (American market), Nike is the leader in running
footwear. Asics has also a strong position with 15% market online. But then, the market share
competition is quite open as other brands are between 5% and 1% which let the possibility for new
entering brands.
Now we will focus on the price of the competitors.
15. 15
The high end product the most popular of Nike running shoes is lunarepic flyknit. It has a price of
180€. (nike.com, 2016)
The high end product the most popular of Adidas is the ultra boost uncaged. It has a price of 179,95€.
(Adidas.com, 2016)
The high end product the most popular of Asics is the gel nimbus 18. It has a price of 180,00€.
(asics.com, 2016)
The high end product the most popular of New Balance is the Fresh Foam 1080. It has a price of
160,00€.(newbalance.fr, 2016)
For this 4 main competitors, the price of their best-seller high end product is between 160 and 180.
There is also similar model costing 160€ ot 200€ for both Adidas and Nike. Then, the price drop to
120-130 for another category of shoes. So the price for high end running shoes start approximately at
160€. This price will be our target price.
16. 16
3. Setting the goals of pricing
The goal of my brand won’t be penetration price as it is high end product, but we will try to stay
around the same price as high end product of concurrency, but proposing French “savoir-faire” and
manufacture, which is a value added to the product. I have chosen a competition based pricing
combine with a target cost pricing.
The competition-based pricing was relevant as in the running footwear industry, there is already a
big amount of same products (running shoes) and a big amount of different brands providing them.
All this different competitors have thus already study the market and come to a price. There is also
an equilibrium for the price, which come between 160 to 200 euros, with an average around 180 euros
for the most popular brands. Knowing that, I can set average price around which my product can be
sold on this market, and participate to the competition. This is setting the retailer price, which is the
price customer will actually buy for the product.
The target cost pricing part was used mainly to establish a whole sale price. After several researches,
it appears that generally the whole sale of a shoe in the running footwear industry equal more or less
50% of the final retail price. (solereview, 2016) Knowing the retail price, I thus knew what the
maximum price for the whole price was approximately. Also knowing the VAT, I could calculate the
approximate net price of my product. Then, knowing the mark up, which for shoes industry is around
50% (Dunne, 2014) (The Shoe Dog, 2015), I could calculate the target cost of my product, with the
simple formula target cost = whole price(net) – mark up.
This combination of price strategy allow me to have a safe price for whole sale (with a 50% markup)
and a price that is competitive in the running shoes market.
17. 17
4. The principles of pricing of analysed product (service)
4.1. The calculation of BtoB price under EXW conditions of the same product
The detail of the price will be explain below the sheet.
Table 1 : Decomposition of BtoB price
No. Names of the price’s elements Total Value (Eur) Value per
product
(Eur/product)
Specific weight %
in a price
Variable costs
1. Insole 0,56 0,56 0,68
2. Outsole 2,66 2,66 3,25
3. Midsole 0,56 0,56 0,68
4. Upper 9,1 9,1 11,12
6. Packaging 1,12 1,12 1,37
Total materials 14 14 17,11
Fixed costs (depreciation on 1 year)
1. Sewing machine (x10) 94000 2,61 3,19
2. Water jet cutter machine (x2) 300000 8,33 10,19
3. Assembling desk and tools (x10) 10000 0,28 0,35
4. Shoe dryer + quality control (x5) 4700 0,13 0,16
5. Rent + Overheads per year (630m2) 63000 1,75 2,2
6. Labour work per year 722400 20,07 25,23
Cost of product (Variable costs + Fixed
costs)
48,12 41,70
Mark-up (50%) 24,06 29,41
Price (net) 72,18 88,23
VAT (20%, France 2016 ) 9,62 11,76
Final price (bruto) 81,80 100
Variable costs:
For variable costs, all the costs are found by calculating percentage of the total materials cost. In
sneakerfactory.com, it is indicate the percentage of each. The 14 euros are calculated thanks to target
pricing. Coming from approximately 80 euros (50% of 160), minus mark up , VAT, then fixed cost,
we can calculate through excel the total of variable cost, from which we do the percentage for each
component of the shoe.
18. 18
The percentage are the following for the total of the price:
Insole 4% : 0,04 × 14 = 0,46 €
Oustole 19% : 0,19 × 14 = 2,66 €
Midsole 4% : 0,04 × 14 = 0,56 €
Upper 65% : 0,65 × 14 = 9,1 €
Packaging 8% : 0,08 × 14 = 1,12 €
Fixed cost :
For the fixed cost, we have first to know how much we will produce per year. This allow us to
calculate the price of fixed cost per product. We calculated that we will produce 20 pair of shoes per
hour, 35h per week (legal work time in France), 50 weeks a year (Factory is close a bit more than 2
weeks a year)
It gives us : 20 × 35 × 50 = 35000 pair of shoes per year
Water jet cutter : Waterjets typically come as complete systems, including the high-pressure water
pump, a system to precisely position the waterjet nozzle, a tank to catch the waste water, and an
abrasive feed system. Prices run from $50,000 to 300,000, with $150,000 being about average for a
mid-range waterjet system.
Sewing machine : We will use a ZY820 Zoyer sewing machine for shoe industry, that cost 10 000$
for one machine, which is approximately 9400€ (Alibaba, 2016)
We will buy 10 of it, which give us : 9400 × 10 = 94000€
Dryer : To dry the shoes after they are assembled are glued, we need a machine that will dry and chill
it. This machine can hold 64 shoes and we are producing 20 pairs per day per hour, 7 hours a day,
which means :
7 × 2 × 20 = 280 shoes per day
We thus need 5 machine (can hold 320 pair), with 1000$ per machine, which give us 4700 euros.
(wholesaler.alibaba, 2016)
Rent : For the rent, we will rent a factory few kilometres from Paris in Ile-de-France region, because
the rent is less expensive and the transport to the capital is still easy.
19. 19
The rent is more or less 100€ per year per meters square, and we will rent 630m2 of factory ( we can
rent by area of 210m2) This will lead us to a total expense of 63000€ per year. (pole-implantation.org,
2016)
Labour work :
The labour work will consist of 29 people working together for 6 different jobs. This jobs will be the
following :
Director : The director will take care of financial aspect of the industry, contracts and other
administration duty. He is the head of the company. His salary is 4000 euros per month bruto.
Manager: There will be two manager, in charge of recruiting, managing the team, taking care or the
practical aspects of the factory and well going of the work. They are just above the director in the
diagram of the company. Their salary will be 3000 per month bruto each.
Marketing: There will be two people in charge of marketing, which consist of studying the market,
the competitor, and also promoting the brand, create advertisement and taking care of social media
visibility and posts. Their salary will be 2500 euros bruto per month each.
Quality engineer : There will one engineer that will deal with all quality, lean and supply chain of the
company, but also buying of raw materials. His salary will be 3000 euros per month bruto.
Factory chief : There will be one, he will be on site working directly with all the other workers. His
job will be to lead the different workers and manage the team. He will have to deal with the day to
day problems and give feedback to the managers. His salary will be 2200 bruto.
Machine Technicians: They will be in charge of the use of water cutter machine, and the cutting part
of the shoes. They will be formed to use such machine. Their salary will be 2000 euros bruto per
month each.
Quality control technicians: They will be in charge of verifying each product during and in the end
of the production. They have to insure that the shoes meet the quality standard of company, and
Europe and France standards. They will be paid 2000 euros bruto per month each.
Shoes workers: There will be 20 shoes workers. They will be in charge of sewing, cutting (manual
part) and assembling the shoes. They will be paid 1600 bruto per month each.
20. 20
4.2. The calculation of selling price for a customer/enduser of the same product
The detail of the price will be explain below the sheet
Table 2 : Decomposition of BtoC price
No. Names of the price’s elements Total Value (Eur) Value per
product
(Eur/product)
Specific weight %
in a price
Fixed costs (depreciation on 1 year)
1. Labour work 462000 13,2 8,25
2. Rent + overheads 126000 3,6 2,25
3. Transport from factory 27216 0,78 0,49
Cost of product (Only fixed cost) 99,38 62,11
Initial markup 15% 2,64 1,65
Price with maximum discount (net) 102,02 63,76
Discount (30% of retail price) 30,60 19,13
Price without discount (net) 132,62 82,90
VAT (20%, France 2016 ) 26,52 16,58
Final price (bruto) 159,14 99,47
Psychologic price 159,99 100
There will be 7 retails shops in 7 cities of France. The average distance from the factory will be
500kms.
Labour work : There will be one manager and two vendors. The manager will have a salary of 2500
euros bruto per month, and the vendors 1600 euros bruto per month each. There will be 7 shops with
that employees.
This give us : (1600× 2 + 2500) × 12 × 7 = 462 000€ per year
Rent + overheads : We are fixing a total rent of 1500 euros per month for each shops. As there will
be 7 shops, this gives us : 1500 × 7 × 12 = 126 000€ per year
Transport : To simplify the problem, we will not count the initial price of the truck nor the salary of
the driver, but just the cost in gas. The average distance is 500 km for each shops. The driver needs
to drive once each month average to fill in the stock. The average price of gas in France is 1,35€/L
21. 21
(prix-carburant.gouv, 2016) and the average consumption of truck more than 15tons is 48L/100kms
(Government of Canada, 2015).
It gives us : 7 × 500 ×
48
100
× 1,35 × 12 = 27 216 € per year
Mark up : The mark-up is fix to 15% which is average mark-up for retail. (solereview, 2016) It only
represent 1,65% of the total price. But is to be added the discount price, because the shoes will not
only be sold during the sales.
Discount : We fixed the sales to represent 30% of the retail price which represent a bit less than 20%
of the total price. This will be a mark up to the retailer when he sells shoes out of the sales. When the
retailer will sell shoes during sales, he will have a percentage cut off the mark-up.
VAT : It represent 20% of the total price to be added to the final price.
Psychological price : Finally, the price is rounded up to 159,99 € to be a psychological price. The few
euros more are going to be mark-up for the retailer.
22. 22
4.3. The calculation of a price with break even method
The calculation for the break even point is made for the whole sale price as this is the one that will
concern directly the company. It has been made thanks to an excelisfun that provided an excel sheet
to do a break even analysis.( people.highline.edu, 2016) With the excel, I found the break even point
and did a graph showing the evolution of sales and total cost in function of the number of units
produced. On this graph I also made appeared the break event point, highlighted in red colour. In the
sheet, we can see the evolution of the incomes made by the company and at which point it start making
positives incomes and thus gaining money.
Assumptions
Time UnitsStart
Units
increment Unit Price Unit Variable Cost Total FixedCosts
Year 0 1700 81,80 € 14,00 € 1 194 100 €
Units Sales Variable Cost
Contribution
Margin FixedCosts Total Costs NetIncome
0 0 0 0 1 194 100 € 1 194 100 € -1 194 100 €
1700 139 060 € 23 800 € 115 260 € 1 194 100 € 1 217 900 € -1 078 840 €
3400 278 120 € 47 600 € 230 520 € 1 194 100 € 1 241 700 € -963 580 €
5100 417 180 € 71 400 € 345 780 € 1 194 100 € 1 265 500 € -848 320 €
6800 556 240 € 95 200 € 461 040 € 1 194 100 € 1 289 300 € -733 060 €
8500 695 300 € 119 000 € 576 300 € 1 194 100 € 1 313 100 € -617 800 €
10200 834 360 € 142 800 € 691 560 € 1 194 100 € 1 336 900 € -502 540 €
11900 973 420 € 166 600 € 806 820 € 1 194 100 € 1 360 700 € -387 280 €
13600 1 112 480 € 190 400 € 922 080 € 1 194 100 € 1 384 500 € -272 020 €
15300 1 251 540 € 214 200 € 1 037 340 € 1 194 100 € 1 408 300 € -156 760 €
17000 1 390 600 € 238 000 € 1 152 600 € 1 194 100 € 1 432 100 € -41 500 €
18700 1 529 660 € 261 800 € 1 267 860 € 1 194 100 € 1 455 900 € 73 760 €
20400 1 668 720 € 285 600 € 1 383 120 € 1 194 100 € 1 479 700 € 189 020 €
22100 1 807 780 € 309 400 € 1 498 380 € 1 194 100 € 1 503 500 € 304 280 €
BreakEven x BreakEven y Label
17613 1 440 743,40 € BEP =17613units
23. 23
The break even point was calculated thanks to the formula saw in class :
𝐵𝐸𝑃( 𝑢𝑛𝑖𝑡) =
𝐹𝐶
𝑃𝑟𝑖𝑐𝑒 − 𝑉𝐶
Then, we multiple the Break Even Point in unit by the unit price to have to break event point in euros.
This give us :
BEP(unit) = 17 613 units
and
BEP(price)= BEP(unit) x (unit price) = 1 440 743, 40 €
This means the company will start making money at the 17 613 pair of shoes sold in the year. In the
sheet, this is represent by break even x. The break even y is representing the break even point for
price.
With the sheet, it is also interesting to see that with selling 35 000 pair of shoes per year which is the
maximum, the company would have then a maximum income of 1 178 900 €.
0 €
200,000 €
400,000 €
600,000 €
800,000 €
1,000,000 €
1,200,000 €
1,400,000 €
1,600,000 €
1,800,000 €
2,000,000 €
0 5000 10000 15000 20000 25000
Break Even Analysis
Sales Fixed Costs Total Costs BEP =17613units
24. 24
5. Existing company’s pricing for discounts
For discount, the company will do a skimming strategy during the normal period of sell. The product
will first come out to his normal price, and decrease each year with arrival of the new collection, to
finally drop at its lowest 4 years later. When it come out, the product is new and people are willing
to put a higher price which correspond also to the market price. But when the new collection is
released, the old one is not trendy anymore and a good way to sell the remaining stock is lower the
price for the small budget that would not buy the new pair but the old colletion, or for the people that
want a second pair to replace their first. Then this continue over approximately 4 years when the
product is out of date and the company just need to empty his stock for new shoes, because holding
an old product that doesn’t cost a lot is a loss of money, so it need to go out.
During the period of sales, the price will decrease from -10% for the first week to -50% which is the
maximum discount for the last week of sales. This is a typical discount in France. With this type of
discount, the company is almost sure that by the end of the sales, with the competition between people
wanting to buy shoes at the best price, the shoes will go out of stocks early in the sales and in the end
there will be almost no left over. So even if they lose some money on the 50% off shoes sold in the
last week, the majority will be sold before and they will make money.
Features can be made up with artists or sportsman when the brand have enough notoriety. This would
be a way to add value to the product and give it promotion. With this added value, the price could be
higher and the income bigger.
25. 25
Conclusion
All along this project, we made research about different pricing strategy, and choose some to
apply to our case. These different pricing strategy knowledges allowed us to choose the right pricing
strategy knowing what type of product we were selling to what kind of market. Market researches
were then made to know more about who we are going to sell, but also who are our competitor and
what price they are selling. This was useful as the pricing strategy chosen was competition price for
the retail price (BtoB price). It also taught us that the running shoes market was growing each year
and that not only runners were actually buying shoes, but also non-runners for the comfort and look
of the shoes. We then made a lot of research about the running shoes industries. This taught us more
about every technical aspect, such as the name of different part of shoes and their utility, but also their
relative price in percentage and the materials they are using. We also learn what machines were used
to created shoes, and their price and utility. This knowledges allowed us to calculate a wholesale
price, and set the pricing strategy which was target pricing (BtoC price). The theory part was thus
very important for the good understanding of the project but also to make relevant choices.
The practical part consisted in using all this theory and knowledge to calculate BtoB price and BtoC
price. It was done using excel and price find in our researches. For BtoB price, it consisted of
establishing a price of the shoes going out the factory. All fixed cost and variable costs were used.
Fixed cost were all equipment such as sewing machine, but also rent, and labour work. Variable costs
consist of all the materials necessary to create a pair of shoes. Then were added mark-up and VAT.
The BtoB price, calculate thanks to target pricing, consisted of calculating the fixed cost of different
shop for retail, and also the transport once per month from factories to retail shop. Was also included
the labour work of manager and sellers working in the shop. Finally, mark-up, but also discount
percentage and then VAT were added to the price. The final price consisted of a round-up to 159,99€.
We did a break-even analysis to know how much pair we needed to sell in order to make a positive
income. It was made for wholesale price as it is the price that directly concern the company. This
break-even analysis was made on excel and used formula from theory. It consist of calculating for
different amount of pair of shoes the sales bruto, and the total cost of production for also different
amount of pair of shoes. The break-even point was then find where the sales and the cost of production
meet, and gave us the amount of pair of shoes needed to be sold in order to make a profit.
Finally, we quickly presented the possibilities of discounts and of features that could be add to the
shoes. The sales are an important part as in clothing industry generally, there is always sales and it
represent a big amount of shoes sold. In the mode industry, it is also important to add value to this
product, for example with collaboration with artist on the design, or simply by making “signature”
product with a celebrity.
26. 26
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