Product Research- Eco style T-shirts

Product Research- Eco style T-shirts

       Student name:

Student ID:

Name of product: Eco-Style T-Shirts

 

Contents

1. Product Design. 3

2.  Estimation Research and Development and Design Costs. 4

3. Determination of per unit cost of product. 4

4. Cost of Direct Materials purchased and used in production. 6

5. Cost of goods manufactured schedule for 40000 units. 6

6. Schedule of Cost of Goods Sold for 30000 units. 7

7. Determination of Market Price. 7

8.  Cost of downstream Activities. 7

9. Income Statement. 8

References. 9

 

 

 

 

 

 

 

 

 

 

1. Product Design

 

                                   “Eco- Style” T-shirts

The product selected by us is T-Shirts made from recyclable products. The brand name that has been chosen by us is “Eco-Style” and the brand name chosen by very well describes the product offered by me and the main aim that I intend to achieve by introducing this product in the market. The reason why I have chosen this product is to promote use of eco-friendly products in the market. Eco friendly products are those products which do not have an adverse effect on the environment both in their manufacturing as well as disposal. Such products help in preservation of environment and reduction of pollution. At present, the concept of sustainability has become really popular not only amongst producers but also amongst consumers (Krumm, 2020). Consumers are choosing to buy those products which are eco friendly and do not have adverse impact on the environment Carbonandmore.com. As the concepts of environmental protection and sustainable choices have gained popularity, consumers are shifting towards environment friendly products. The trend of rising environmental conscience of consumers is rising at a high pace (Carbonandmore.com, n.d.). It was proved in a survey performed in the year 2019 that around 35 percent of the respondents chose to but an eco friendly product even if it had a higher price (Edelstein, n.d.). This clearly shows that there is a strong demand for eco friendly products at present and it is going to increase further in the coming years. There is one more reason behind choosing this product. T-shirts is a type of clothing which is worn by people from all parts of the world and it is that apparel which never goes out of fashion. It is the most preferred clothing of people from all age groups and there exists a high demand for this product in the national as well as global markets (Credence Research, 2017).

 

 

2.  Estimation Research and Development and Design Costs

 

Particulars

Hours required

Hourly pay rate of R&D professional

No. of Research professionals required

Total

Initial studies, development of manufacturing formula, process design, product design

40

$ 45.00

2

$ 3,600.00

Development of prototype

4

$ 45.00

2

$ 360.00

Testing of prototype

2

$ 45.00

1

$ 90.00

Total Research and development cost

$ 4,050.00

 

(The University of Queensland Australia, n.d.)

The research and development will be carried out in three phases where the first phase would involve the initial feasibility study and development of formula for manufacturing the Eco-Style T-shirts. In this first stage of research and development, the process design would be laid out and the complete product design will be decided. The second stage will be development of prototype of the product and testing of the prototype. The total cost estimated cost of Research and Development and Design Costs is expected to be $4050.

3. Determination of per unit cost of product

 

Direct Material

Direct Materials

Quantity

Amount

Jute (in meters)

0.25

$ 3.60

Old/discarded cloth (meters)

0.5

$ 1.00

Cotton yarn (grams)

50

$ 7.00

Threads for stitching

 

$ 0.25

Labels

 

$ 0.15

Cost of Printing (per unit)

 

$ 3.00

Cost of Direct Material per unit

 

$ 15.00

 

 

 (Lincraft.com, n.d.),

 

Direct Labour

Cost of direct labour per unit

Particulars

Hours per unit

Rate per hour

Total

Cutting Cost per unit

0.25

8

$ 2.00

Stitching Cost per unit

0.5

10

$ 5.00

Total

$ 7.00

 

Note- It is assumed that the level of skill required for this work is low, hence the requirements for labour can be met by hiring cheap labour which is untrained and owing to the nature of work there would be no training costs involved.

Fixed Overheads

Fixed Overheads

Cost of Washing- per annum

$ 8,000.00

Depreciation on equipment

$ 1,250.00

Total

$ 9,250.00

 

Approach used for calculation of fixed overhead cost per unit

The absorption costing approach has been used for allocating the cost of fixed overheads and It is assumed that the fixed overheads would be absorbed on the basis of direct labour hours of cutting department.

Particulars

Units

Estimated Annual production

80000

Annual cutting department labour hours (80000*0.25

20000

 

Fixed Overhead absorption rate =

Total Fixed Overheads / Annual cutting department labour hours 

   

             

= $ 0.46

per labour hour (cutting department)

 

Total Per unit cost  of each T shirt

Direct Material

$15

Direct labour

$ 7.00

Fixed Overheads

$ 0.12

Total

$22.12

 

4. Cost of Direct Materials purchased and used in production

The cost of direct materials purchased to produce 40000 “Eco-Style” T shirts will be equal to $600,000.

 

Cost of Direct Materials purchased

No of units to be purchased

Cost of direct materials per unit

Total

40000

$ 15.00

$ 600,000.00

 

Cost of Direct Materials used in production

 

Value of opening inventory

$ 5,000.00

Add:

Cost of direct materials purchased

$ 6,00,000.00

Less

Value of closing inventory

$ -5,000.00

Total

 

$ 6,00,000.00

 

5. Cost of goods manufactured schedule for 40000 units

 

Schedule of Cost of Goods Manufactured

Inventory - Direct Material

(in $)

Beginning of Inventory - Raw Materials

5000.00

COGS - Purchase - Raw Materials

600000.00

Total Raw Materials

605000.00

Ending Inventory - Raw Materials

5000.00

Total Direct Materials

600000.00

Direct Labor

 

COGS - Direct Labor Cost

280000.00

Total Direct Labor

280000.00

Factory Overhead

 

COGS - Other Fixed overheads

4600.00

Total Factory Overhead

4600.00

Total Manufacturing Cost

884600.00

Inventory - Work in Progress

 

Beginning of Inventory - WIP

40000.00

Total Work in Progress

924600.00

Ending Inventory - WIP

40000.00

Cost of Goods Manufactured

884600.00

 

6. Schedule of Cost of Goods Sold for 30000 units

Schedule of Cost of Goods Sold

Cost of Goods Manufactured

$ 6,63,450.00

Add: Administration Overheads

$ 0.00

Cost of Production

$ 6,63,450.00

Add: Opening Inventory - Finished Goods

$ 40,000.00

Less: Closing Inventory-Finished Goods

$ -40,000.00

Cost of Goods Sold

$ 6,63,450.00

 

7. Determination of Market Price

The market price of Eco-Style T-shirt has been decided by using the cost plus method wherein a 20% mark-up on total per unit cost of each T-shirt would be added to total per unit cost to arrive at the suitable price at which the T Shirt will be sold in the market.

Price of each Eco-Style T shirt= 22.12*1.2 = $ 26.5

8.  Cost of downstream Activities

The T-shirts will primarily be marketed through online shopping portals where in business would be required to pay to the commission of 1% of Sale price of product to these E-commerce platforms. Apart from this, the product would be promoted through certain cost-friendly methods of advertisement such as digital marketing which would cost around $9600 (800*12) per annum and through use of social media platforms such as facebook, twitter, linked in etc (Thekingdom.com, n.d.)I intend to use certain other effective methods for marketing such as content marketing which is one of the most popular methods of marketing nowadays and involves no major cost. I would use my creativity to write good content for my product and business so as to make significant positive publicity of my product. As the Eco-style T shirt is a product which is related to an environmental cause, I would get in touch with certain people who are willing to act as influencers. This would enable me to market and advertise my product in the best manner without incurring significant marketing costs associated with traditional methods of advertising which are not really effective and are expensive too (Small Business Sense, n.d.). There will not be any storage costs as I would be using the store room at my house for storing the T shirts produced by the business.

9. Income Statement

Income Statement for month of March (based on absorption costing)

Particulars

Amount

 

 

Sales Revenue

$ 13,25,000.00

Less: Cost of Goods Sold

$ -11,06,000.00

Gross Profit

$ 2,19,000.00

Less: Operating Expenses

 

Commission on Sales

$ -13,250.00

Advertising cost (digital marketing)

$ -9,600.00

Administrative expenses

$ -3,000.00

Operating Income

$ 1,93,150.00

Less: Income tax expense @30%

$ -57,945.00

Net Income

$ 1,35,205.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Carbonandmore.com. (n.d.). Do Consumers  Prefer Eco-Friendly Companies. Retrieved from https://www.carbonandmore.com/do-consumers-prefer-eco-friendly-companies/

Credence Research. (2017). Evolution in T-shirt industry Worldwide will Enhance Market Growth.  Retrieved from https://www.credenceresearch.com/report/t-shirt-market

Edelstein A. (n.d.). More consumers are opening their wallets for eco-friendly products. Retrieved from https://www.surveymonkey.com/curiosity/more-consumers-are-opening-their-wallets-for-eco-friendly-products/

Krumm L. (2020). Sustainable Consumer Behavior: Go Big or Go Home? Retrieved from http://www.bos-cbscsr.dk/2020/03/12/sustainable-consumer-behavior-go-big-or-go-home/

Lincraft.com. (n.d.). Knitting Wool and Yarn. Retrieved from https://www.lincraft.com.au/knitting-and-crochet/knitting/knitting-wool-yarn

Small Business Sense. (n.d.). 20 Low Cost Marketing and Advertising Ideas for Frugal Entrepreneurs. Retrieved from https://small-bizsense.com/20-low-cost-marketing-and-advertising-ideas/

The University of Queensland Australia (n.d). Professional staff and professional research staff salaries. Retrieved from https://staff.uq.edu.au/information-and-services/human-resources/pay-leave-entitlements/pay-scales/professional-research

Thekingdom.com. (n.d.). Welcome To The Kingdom. Retrieved from https://www.thekingdom.com.au/?utm_term=marketing%20agency&utm_campaign=Campaign+%231&utm_source=adwords&utm_medium=ppc&hsa_tgt=kwd-10439406&hsa_grp=28471143016&hsa_src=g&hsa_net=adwords&hsa_mt=b&hsa_ver=3&hsa_ad=412895660799&hsa_acc=4499650453&hsa_kw=marketing%20agency&hsa_cam=493656616&gclid=EAIaIQobChMIzszDnf7J6QIVFz5gCh2ZJwiFEAAYBCAAEgI0hfD_BwE

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