The Cost of Manufacturing

1. The Cost of Manufacturing How much does manufacturing cost?

2. Essential Question • How is mathematics used to determine cost and feasibility in manufacturing?

3. The Cost of ManufacturingHow much would it cost to manufacture a clipboard from PVC plastic? • Cost of Materials – a materials engineer has decided you will use PVC plastic as the body of your clipboard. Each sheet cost $20 and is 5’x8’. • How much is it per square foot? • $2 per square foot 1 ft 1 ft

4. The Cost of ManufacturingHow much would your clipboard cost to manufacture? • As a manufacturing engineer you don’t want to waste materials because that increases the cost of the product. Try to create as many clipboards as possible out of one sheet of 5’x8’ plastic. • Each clipboard will be 9” wide x 13” high • Layout a pattern on a sheet of paper and try to figure out how many you can fit on in sheet of plastic. • Measure the length and width of the rectangle then calculate the area: • Area=length x width = ______ inches x ______ inches = _______ inches²

5. The Cost of ManufacturingHow much would your clipboard cost to manufacture? • In order to determine how many patters you can fit onto 40 sq ft of plastic, you will need to convert the area from square ft to square inches. • Calculate the number of square inches in a square ft. Remember: • Area (A) is length (l) multiplied by width (w). A=l x w (how many inches are in a foot?) 1 ft²= ______ in²

6. The Cost of ManufacturingHow much would your clipboard cost to manufacture? • If you were to lay out your clipboard template onto 40 square feet and trace it so the patterns are easy to cut out, how many could you fit? • What would the material cost for one clipboard be? • Remember 40 square feet of material cost $20. • Use the following formula to help: Material cost = cost for 40 ft² / # of holders on 40 ft² = ________ • Each clipboard will also need a clip. The cost of the clip is $.85. • How much does your complete clipboard with the material and the clip cost?

7. The Cost of ManufacturingThe Cost of Labor… • In addition to buying the materials, the manufacturer needs to pay the employees who produce the clipboards. • If the factory worker is paid $15 per hour, how much will he earn in an 8-hour day? • Earnings for a 5 day work week? • Earning for a 52-week year? • If he can make 1 clipboard every 10 minutes, how many can he make in an 8 hour day? • Using the daily pay rate you calculated above, what would the labor cost be to make each clipboard?

8. The Cost of ManufacturingOverhead Cost… • The cost to rent the factory, pay the utility bills, and other business maintenance costs are grouped together as the cost of overhead. • The easiest way to estimate manufacturing overhead on a single product is to determine plant overhead during a year and divide by the total number of products produced in that time. • Assume your factory can produce 100,000 clipboards per year, and the overhead costs are $200,000. What is the overhead cost per clipboard?

9. The Cost of ManufacturingTotal Production Cost… • Using all of your figures, calculate the cost to produce one clipboard. material cost + labor cost + overhead = total production cost

10. The Cost of ManufacturingManufacturer’s Markup… • You can’t sell a product for the same amount it costs you to produce it and make money (profit), but you can’t mark it up too much or the customer might go elsewhere. • The markup is a percentage added to the cost of production. For example, to make a 10% profit you would add 10% of the total production cost to the total cost of production. • To find 10% of the total production cost multiply the cost by .10. To make 25% profit, the manufacturer multiples the production cost by .25 and adds that value to the cost of production. The final sum is the wholesale cost. prod cost + (manufacturer’s markup x prod cost) = wholesale cost

11. The Cost of ManufacturingPacking for Shipment… • Factories do not sell products individually, but instead in full boxes, called cases to stores that sell to individual customers. Assume your holders will be tightly packed in a shipping box with cardboard packaging to protect them. • To find the volume of clipboard, measure the overall volume of the sample, adding about ¼” on all sides to allow for the cardboard packaging. • Volume (V) is length (l) multiplied by width (w) multiplied by height (h). What is the volume packaging? Volume = l x w x h • V packaging = _____ in. x _____ in. x _____ in. = _____in³

12. The Cost of ManufacturingPacking for Shipment… • The company has a big supply of shipping boxes, or cases, that are 18in. long, 12 in wide, and 10 in high. What is the volume of one shipping box. • How many clipboard could you fit inside one case? Show how you calculated your answer.

13. The Cost of ManufacturingRetail Pricing… • When a store buys clipboards, it pays a “wholesale price.” The store then sales the product for a higher “retail price” that is usually twice the wholesale price. • When setting the wholesale price per unit, your must consider all of the following: • costs it takes to produce one unit • The amount of money you want to make beyond your costs (your “profit”) • Whether people will buy your product at the final “retail price”

14. The Cost of ManufacturingWhat is the wholesale price your plant will charge… • What is the wholesale price that your manufacturing plant will charge for one clipboard? Material cost + Labor Cost + Overhead = Total production cost Total Prod Cost + (Manuf Markup (25%) x Total Prod Cost) = Wholesale Cost Per Item

15. The Cost of ManufacturingWhat you will charge per case of cell for holders… • Calculate the price your manufacturing plant will need to charge for a case of clipboards. Wholesale Cost Per Item x Items per box = wholesale cost per box • Shipping and handling is $25 per box Wholesale Cost Per box + Shipping and Handling = total store cost

16. The Cost of ManufacturingRetail Price… • Calculate the retail price. Assume the store owner would need to charge a markup of 50% to cover salaries, rent, overhead, and profit. Total Store Cost / Items per box = Store Cost per Item Store Cost of Each Item + (store’s cost markup x store cost of each item) = Retail price

17. The Cost of ManufacturingRetail Price… • Calculate the retail price. Assume the store owner would need to charge a markup of 50% to cover salaries, rent, overhead, and profit. Total Store Cost / Items per box = Store Cost per Item Store Cost of Each Item + (store’s cost markup x store cost of each item) = Retail price Do you think people will pay the retail price for the clipboard? Why or why not?

18. The Cost of ManufacturingWhat are the tradeoffs… • Competition often means that the manufacturer has to find a way reduce the cost of the product or go out of business. The last step is to think about how you might reduce costs. • Reducing the cost almost always involves tradeoffs. • Trade-off is a design choice in which one benefit is chosen at the expense of another. • For example: • Using a low profile clip versus a regular clip • Using chipboard rather than colored pastic.

19. The Cost of ManufacturingWhat are the trade-offs… • Write about one trade-off that would make the product less expensive. Do you think this is a good trade-off? • Write about one trade-off you think would help sell more products.

20. The Cost of ManufacturingHow much will your product cost? Using the internet, research materials that could be used to manufacture the game you designed in our engineering design unit. Calculate your cost per game with materials to manufacture. Remember you can purchase materials in larger quantities to reduce costs. Do your calculations to manufacture 100 games. Use the materials worksheet as guidance.