Cambodia Export Diversification and Expansion Program (CEDEP I)

High Value Silk Component

Costing ExercisesIn preparation of … Fair

Exercise 1 : Calculate Raw Materials Costs Meet Suor. Suor comes from Prey Veng and has four children, 20 years of age, 15 years old, 10 years old and 5 year old . Sour is making a pillow and other home products to make additional source of living for her family . Her husband is a farmer and can only harvest rice on a seasonal basis. Sour’s workshop is only in her house so she can take care and prepare the need of her family. She sells her products locally to exporter named Lotus Blanc.

Suor wants to calculate the cost of producing a pillow. Suor determined that her raw materials costs per pillow are:

Fabric per meter $ 3.00 she needs half meter of this.Piping per meter 0.20 she needs 25% of this.Pillow stuffing per gram 0.60 she need half gram of thisTassels per piece 0.30 she needs four of thisZipper per 5 piece 1.5 she needs one piece

She also puts a hangtag on each pillow, which cost 400 riel per piece, and packs each pillow in a plastic bag to keep it from getting dirty. Each plastic bag cost Suor 200 riel per piece.

What is the total cost of Suor’s materials?

Direct Material Cost

Total material Cost

Wastage Allowance (3%)

Inflation factor (1.44%)

______________

Total

Exercise 2: Calculate Suor’s Desired Hourly Wage

Suor assumed that she and her husband is regularly working for 26 days in their business for 8 hours

How much is her desired rate per hour?

(Monthly expenses / number of days / working hour / number of person).

Exercise 3: Calculate Labor Expense Suor estimates that she spends 10 minutes measuring and cutting the fabric of each pillow, 15 minutes sewing each pillow, 30 minutes embroidering accent designs on each pillow, and another 10 minutes adding tassels and other finishing touches to each pillow. Rate she asked is USD 83 per month.

using Suor’s desired hourly wage from Exercise 2, calculate Suor’s total labour expense per pillow.

x =

Amount of time Desired hourly Labour Cost

Spent producing Rate

Exercise 4: Calculate Total Direct Cost (Materials + Labour)

Using Suor’s raw material’s cost from Exercise 1 and Suor’s total labour cost from Exercise 2, calculate Suor’s total direct costs.

Materials (including labeling and packaging) +

Labour

Total direct costs

Add Rejection Rate (3%)

Total Manufacturing Cost _______________________

Exercise 5: Calculate Indirect Expenses

How much is Suor’s Indirect Expenses per month?How much is Suor’s Overhead cost per unit if her annual

sales is 100 pieces of cushion per month?

Exercise 6: Calculate Total Product Cost

Using Maria’s direct cost from Exercise 4 and her total indirect (overhead)costs from Exercise 5, calculate Maria’s total product cost.

Direct Costs (Materials + Labour)

(Exercise 4)

+

Indirect Cost (Over Head) per Piece

(Exercise 5)

=

Total Product Cost

Exercise 7: Calculate Producer’s Price

Calculate Suor’s price for one pillow. She uses a profit margin of 15%

Total Product Cost

+

Profit Margin (15%)

Producer’s (Ex-works) Price

Exporter’s price• Staffs = how many staffs and staff’s time involve in export = 2% of total staff payroll

($1200.00 per month)• Space Rental = how many 2% of Usd 800 per month are utilize for export ? • Utilities = 20% of total consumption (USD 200 per month)?• Transportation = 30% of USD 100 per month• Staffs benefits = 2% of USD 1200 per month of total staff benefits• Taxes = 10% of gross sales at a target of USD 100,000 per year (or 12500 pcs per

year with average price of USD 8 per item)• Legal Expenses = USD 2500 per year• Bank charges = USD 1200 per year • Sample Making expenses = 120 USD per year• Office supplies = 2% of total consumption of USD 200 per month• Photo compilation = 120/per year• Shipping expenses (FOB) = 10% of total unit price at a minimum order of USD

5000, worth• Profit = 15% of manufacturing expenses

Exercise 8: Calculate Exporter’s Price

Calculate Suor’s price for one pillow. She uses a profit margin of 15%

Total Product Cost

+

Profit Margin (15%)

Exporter’s (Ex-works) Price

Exercise 8: Calculate Price of ExporterCalculate the final retail price for one of Maria’s pillows:

Ex-works Price Export

FOB Price + 10% of Ex-workat min. of USD 5000 worth per shipment

Wholesale Price

Retail Price x 2 of manufacturing cost

Exercise 9: Review your offered price if competitive

Marks and Spencer (Retailer) Selling the cushion cover USD 50 per piece at a factor of 6.

Whole Saler Market selling cushion cover at USD 40 per piece at a factor of 6

Please check if price of Suor and exporter is competive.