Friday Nov 1 Pricing Assignment

 Review of Fixed and Variable Costs: 1 min video

How to calculate Overhead Costs 

• Getting a percentage and applying it to every product that is sold to get a base cost before adding a profit

From the Video:

T-shirt Business Example:

Direct or Varriable Costs

• t-shirt costs
• decoration cost
• labour cost
• packaging cost
• shipping costs............................$15,000/month

Indirect or Fixed Costs

• Rent/Residential space
• Cost of POS system/software/website
• Marketing/Promotions cost
• Phone
• Equipment
• Vehicle expenses....................$3,000/month

to get your overhead cost: Fixed divided by Variable $3,000/$15,000 =.2 x100 =20%

T-shirt Cost $2      

Transfer Cost $2   

Labor $1

Direct Cost $5.00/shirt

To calculate the Overhead Costs: Indirect Costs/Direct Costs = put into a %

Therefore the Overhead cost would be 20% of $5.00 = $1.00 which means you need to add a $1.00 to each shirt to consider overhead costs. Therefore the base cost of the shirt is $6.00.

TODAY'S TASK

1. Your cost per shirt is $6.00 and you decide to sell it for $12.00. Calculate the profit you will make on each shirt.

2.You sell 100 shirts for $12.00 each, what is your total revenue and what is your profit?

3. You sell 100 shirts for $24.00 each, what is your total revenue and what is your profit?

4. Explain why it is important to price your products accurately.

5. If you sold your t=shirts for $100 each, what pricing strategy would you be using Explain.

6. What happens if you forget to add in the overhead cost and you simply thought the base cost for your shirt was $5.00.