PRICING ANDCOSTINGBY MARIA, CHRISTIAN AND HARSH
FLOW OF PRESENTATION1. Current Pricing Strategy2. Different Costs3. Calculations4. Cost Based Pricing Solution5. Other Pri...
CURRENT PRODUCT & PRICES• Key Rings – R 25• Midi Poppies – R 60• Maxi Poppies - R 115
WHAT IS THE CURRENT PRICINGMODEL?• Cost Based Pricing• Example Midi dolls – R 60 (wholesale price) you bought them for...
VARIABLE COSTS• Materials• Labor Charges• Easy to Calculate?• Increase in material costs• Inflation• So do we account for ...
FIXED COST• Very important to cover all the fixed costs example water, electricity, own salary, insurance, telephone, etc...
FIXED COSTS• Therefore Overhead per Midi = X/500 Rands (which we assume is 30% overhead cost)• Another month production =...
MARK UP• How should mark up be calculated?• Amount of profit which Shwe-Shwe wants to invest• Profit = Pay-back + Retentio...
WHAT ARE THE COSTSAccording to the financials and information given by Wandile : Variable costs Maxi doll Mid...
WHAT ARE THE COSTSAccording to the financials and information given by Wandile : 2008 2009 ...
WHAT ARE THE COSTSOur assumptions : 2010 2011 2012Operating ...
HOW TO FIND THE RIGHT PRICE• According to Wandile : bad month 200 items sold, good month 500-800 items sold• Calculati...
HOW TO FIND THE RIGHT PRICE Variable costs Maxi doll Midi doll Key ringsLabor costs 36.5 25....
PRICING MODEL
PRICING OBJECTIVES Competitive Profit Survival Product quality Pricing Ret...
PRICING MODELPrice objective: profitsType of product: toy / souvenir / decorationTarget market: middle/upper class tourist...
PRICING BASIS Competition SA MARKET Customer Cost
WOO-MENPRICING BASIS 200R Competition EUROPEAN MARKET • Market •...
PRICING STRATEGIESDifferential pricing: different prices to different buyersfor the same product (European market)New mark...
1 MILLION RAND FOR 3 YEARS• Objective: Increasing demand and capacity enhancement• Per year approx.: • 50 000 Mark...
Thank you!Questions?
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Pricing and costing final

Published on: Mar 4, 2016
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Transcripts - Pricing and costing final

  • 1. PRICING ANDCOSTINGBY MARIA, CHRISTIAN AND HARSH
  • 2. FLOW OF PRESENTATION1. Current Pricing Strategy2. Different Costs3. Calculations4. Cost Based Pricing Solution5. Other Pricing Strategies6. 1 million Rands7. Questions
  • 3. CURRENT PRODUCT & PRICES• Key Rings – R 25• Midi Poppies – R 60• Maxi Poppies - R 115
  • 4. WHAT IS THE CURRENT PRICINGMODEL?• Cost Based Pricing• Example Midi dolls – R 60 (wholesale price) you bought them for 90• How this price is decided• R 9 for material + R 25.5 labour + 30% Overhead + 33 % Mark Up = R 60• So the cost pricing is dependent on three components – fixed costs (overheads) + Variable Cost (material + Labour) + Mark up (profit)• According to this model Shwe-Shwe should be profitable ?
  • 5. VARIABLE COSTS• Materials• Labor Charges• Easy to Calculate?• Increase in material costs• Inflation• So do we account for inflation every year and keep changing the price?
  • 6. FIXED COST• Very important to cover all the fixed costs example water, electricity, own salary, insurance, telephone, etc.• Division of Fixed cost = X Rands• Say production = 500 Midis
  • 7. FIXED COSTS• Therefore Overhead per Midi = X/500 Rands (which we assume is 30% overhead cost)• Another month production = 300 Midis• Therefore only 60 % of the overhead will be covered ( 300 * X/500)• So the overhead needs to be distributed among lowest production of poppies
  • 8. MARK UP• How should mark up be calculated?• Amount of profit which Shwe-Shwe wants to invest• Profit = Pay-back + Retention• Therefore, Shwe-Shwe needs to decide how much money it wants to invest in the business without rocketing the selling price
  • 9. WHAT ARE THE COSTSAccording to the financials and information given by Wandile : Variable costs Maxi doll Midi doll Key ring Labor costs 36.5 25.5 11.2 Material 32.5 9 4 Total 69 34.5 15.2
  • 10. WHAT ARE THE COSTSAccording to the financials and information given by Wandile : 2008 2009 2010 2011Operating 18199 61083 49392 73356expenses:Bank Charges 2939 3624 3811 5032Accounting Fees 0 0 3990 16405Insurance 0 0 3993 7578Telephone and Fax 0 0 6253 3348Computer Expenses 0 0 0 0Donations 5000 50000 17500 0General Expenses 2731 0 13400 38307Travel - Local 7529 7459 445 2686
  • 11. WHAT ARE THE COSTSOur assumptions : 2010 2011 2012Operating Operating 49392 73356expenses: expenses: 101500Bank Charges 3811 5032 Bank Charges 5000Accounting Fees 3990 16405 Accounting Fees 16000Insurance 3993 7578 Insurance 7500Telephone and Fax 6253 3348 Telephone and Fax 5000Computer Expenses 0 0 Salary Wandile 36000Donations 17500 0 Electricity + water 9000General Expenses 13400 38307 Internet 5000Travel - Local 445 2686 Transports 15000 Travel - Local 3000
  • 12. HOW TO FIND THE RIGHT PRICE• According to Wandile : bad month 200 items sold, good month 500-800 items sold• Calculation of the overhead : conservative approach to avoid under allocation of the costs. We choose 350 items sold per month, 4200 per year• Revenue projections are: Key rings 2.5%, Maxi dolls 20% and Midi dolls 65%• Formula : 101’500/4’200/(69*20%+34.5*65%+15.2*3%)=65% overhead• Add inflation of 6% over 3 years, this is about 20% price increase at the end of the 3 rd year, average during the 3 years is 9%• Markup: 30%, includes variable salary for Wandile, profits to finance growth, money going back to stakeholders
  • 13. HOW TO FIND THE RIGHT PRICE Variable costs Maxi doll Midi doll Key ringsLabor costs 36.5 25.5 11.2Material 32.5 9 4Total 69 34.5 15.2Overhead 65% 113.85 56.93 25.083 year inflation 9% 124.10 62.05 25.08Markup 30% 161.33 80.66 35.54Old prices 115 60 25New Prices 160 80 35 Price increase 39% 33% 40%
  • 14. PRICING MODEL
  • 15. PRICING OBJECTIVES Competitive Profit Survival Product quality Pricing Return on investment Objectives Status quo Market Share Cash Flow
  • 16. PRICING MODELPrice objective: profitsType of product: toy / souvenir / decorationTarget market: middle/upper class tourists, mostly women 25+ years old and corporates
  • 17. PRICING BASIS Competition SA MARKET Customer Cost
  • 18. WOO-MENPRICING BASIS 200R Competition EUROPEAN MARKET • Market • Demand • Willingness to pay Customer Cost
  • 19. PRICING STRATEGIESDifferential pricing: different prices to different buyersfor the same product (European market)New markets: price skimming (New markets)Promotional pricing: special event pricing (SouthAfrica)
  • 20. 1 MILLION RAND FOR 3 YEARS• Objective: Increasing demand and capacity enhancement• Per year approx.: • 50 000 Market & exhibition stalls • 20 000 More in accounting services • 25 000 Increasing corporate sales • 85 000 Marketing & Sales Executive • 50 000 Print media publicity • 20 000 Online Sales • 100 000 Capacity enhancement
  • 21. Thank you!Questions?

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