COSTING

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Author:
hayleyjo2
ID:
153816
Filename:
COSTING
Updated:
2012-05-14 17:24:25
Tags:
PD FINAL
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Description:
FIT product development final PART 1
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  1. The Innovative Design Protection and Piracy Prevention Act
    • Spells out American designers' intellectual property rights
    • Will provide protection to new and original designs for three years
    • The only copycat designs prohibited by law have to be deliberate copies that are "substantially identical" to original designs
  2. We judge another company by its _____, but we judge our own company by our _____...
    • Sales
    • Profits
  3. How do we measure success?
    • Gross margin
    • Net margin
    • Sell through
  4. Gross margin
    • Net sales - total cost of goods
    • Generally a pre-determined markup that covers ALL expenses (marketing & selling costs, operating expenses) plus profit
    • Profit is planned as a % of gross sales
  5. Net margin
    Net sales - (cost of goods + operating expenses)
  6. Sell through
    Percentage of units sold at full price
  7. Net income
    • The amount of revenue earned after ALL relative costs have been deducted during an accounting period
    • Used by most businesses as the ultimate determining factor for success
  8. Pricing formula
    Cost of goods + markup = selling price
  9. Pricing strategies: 3 variables
    • 1) The cost of goods
    • 2) The gross margin
    • 3) The retail price
  10. Rigid calculation approach (pricing)
    • Uses a formulaic approach to pricing
    • For example, ALL wholesale prices will meet a pre-determined gross margin
    • Works for basic styles but may cause problems for updated products
  11. Subjective pricing
    • Strategy that takes the following into consideration:
    • -Current selling price of similar competitive items
    • -Uniqueness of the style compared to competitors
    • -Current value of the product brand
    • -Current consumer advertising plans
  12. Issues with subjective pricing
    • Care has to be taken to evaluate the effect
    • Deviates from the rigid calculation process a company might currently be using
    • Merchandiser must be able to justify new pricing on the basis of final margin
    • Volume vs. margin %
  13. If a wholesale price is reduced by $2...
    • Gross margin is greatly reduced
    • Style must sell more or other styles in the line have to be priced to compensate for the loss
  14. Costing levels
    • Multi-level costing process for product developers
    • 1) Quickie costing (estimates)
    • 2) Costing for sale (calculating)
    • 3) Production costing (monitoring)
    • 4) Accounting costing (reporting)
  15. Quickie costing
    • Preliminary cost estimates during early part of the development process
    • Based on previous costs and fabric requirements
    • Allows product developers to pick out styles that have little chance of adoption due to price
  16. Costing for sale
    • Accurate cost calculations used in considering product adoption
    • Based on an actual garment sample
    • Fabric requirements are calculated from a test marker using size scale and fabric width details
    • Used in determining wholesale prices
  17. Production costing
    • Measure of actual variable manufacturing expenses for labor and materials
    • Depicts the actual cost of production but does not consider all aspects of sales volume
    • Figures can be used in the next season's quickie & costing for sale
  18. Accounting costs
    • Measures cost of goods, fixed variable manufacturing costs, plus G&A costs
    • Corporate accountants use this method to evaluate profit and loss for the company
  19. Things to consider when traveling overseas
    • Passport / visa
    • Shots
    • Hotels
    • Air travel
    • Navigating around the country
    • Cultural anomalies
    • Currency
  20. What are overseas agents responsible for?
    • Negotiation
    • Local knowledge
    • Quality control
    • Day-to-day updates on production and sample status
    • Shipping arrangement
    • Quota procurement
  21. How do agents make money?
    Flat monthly fee + sales commission (based on first cost of garment)
  22. Negotiating prices
    • Determine target prices (must know import costs, final selling price, expected gross margins)
    • Must have a basis or precedent for target prices (if style was made before, how much did it cost?)
  23. Negotiating prices process once the factory/agent quotes an initial price
    • Does it meet the target?
    • If not, how far off is the price?
    • Ask for justification of price
    • Can you revise the garment to achieve price?
    • Is price including quota?
    • Is price FOB factory or FOB port?
  24. Methods of production
    • FOB (free on board)
    • CMT (cut, make, trim)
    • LDP (landed duty paid)
  25. FOB
    • Factory undertakes full responsibility of garment until it reaches the port and is loaded onto a vessel
    • Price includes:
    • -Fabric, trims, all raw materials
    • -Labels
    • -Cutting, sewing
    • -Embellishments, printing, embroidery
    • -Packaging, cartons, hangers
    • -Shipping to port of departure
  26. CMT
    • Factory is NOT responsible for any raw materials
    • Fabric & trims must be shipped to the factory in time to meet production schedules
    • Used mostly when importer has a specialized fabric
  27. LDP or "full package"
    • Factory will pay for everything
    • One price is paid to get the fully finished goods into your Distribution Center
  28. 807
    • Fabric purchased and cut in the US
    • Cut pieces trucked to another country to be sewn
    • Duty is only paid on the sewing costs
    • Label says "Made in America"
  29. Freight forwarders
    • Organizes the shipment of goods
    • Best freight raets
    • Full or partial container loads
  30. Import brokers
    Responsible for ensuring the smooth clearance of goods through US customs
  31. Documents needed for US customs
    • Bill of lading, airway bill, or carrier's certificate
    • Commercial invoice (obtained from the seller), showing the value and description of the merchandise
    • Entry manifest
    • Packing lists
    • Quota documents
  32. How is duty calculated?
    • Depends on the goods being imported
    • Apparel is usually "ad-valorem" = a % added to the FOB amount quoted on the commercial invoice
    • Duty is not added to any quota costs
  33. How is duty paid?
    • Money goes to the US govt
    • The amount of duty has to be paid to customs prior to release of goods
    • Duty does not need to be paid on goods not for commercial use (mutilated samples)
  34. What needs to be shown on clothing labels?
    • Country of origin
    • Care instructions
    • Fabric content
    • RN number (importer of record)
  35. Three methods of mutilating a sample
    • 1) Section is cut or torn from the main body of the garment, at least 2" in length
    • 2) A hole is punched or cut on the outside in a prominent area of at least 1" in diameter
    • 3) May be marked with the word "SAMPLE" (at least 1" x 2") in indelible ink or paint
  36. Cash in advance
    • Importer must send payment to the supplier prior to shipment of goods
    • Importer must trust that the supplier will ship the product on time and that the goods will be as advertised
    • All risk is placed on the importer/buyer
  37. Down payment
    • Buyer pays the seller a portion of the costs up front
    • Buyer must hope that the seller makes the product
    • Seller must begin production without guarantee of full payment
    • Shared risk between buyer & seller
  38. Open account
    • Normally used when the buyer and seller have a good, long-standing relationship
    • Buyer pays seller all or portion of costs at a pre-determined time
  39. Letter of credit
    • Most common form of papyment
    • Buyer pays for goods up front but hte money is held by the bank untnil the seller has produced the requisite documents
    • Documents needed: commercial invoice, bill of lading (shows shipping info), certificate of inspection
    • Disadvantage for buyer is that they are out the costs up front, but advantage is that they are protected

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