Question

Product Costing Project Develop the full cost of a simple item.

1. Choose a simple, everyday household item (i.e. loaf of bread, fabric placemat, broom) to investigate its full cost.
   
2. Describe the product and why it was chosen.
   
3. Identify all direct and indirect materials used in production.
   
4. Identify the different production stages and the labor requirements for each stage.
   
5. Calculate the overhead.
   
6. You will use the material, labor, and overhead amounts to calculate the production cost per
   unit.
   
7. Find the selling price for your product.
   
8. Assumptions:

• Production will be in your personal kitchen or workshop, therefore no rent expense will be incurred.
  
• Use the fixed amount of $100 per month for the additional utilities expense that will be incurred in the production of your product.
  
• No additional major machinery/equipment will need to be purchased. Small tools and equipment such as hammers or cookie sheets may be lumped together. They will be considered to have a limited one year life with no salvage value.
  
• The federal minimum wage should be used as the labor cost per hour.
  
• Assume no indirect labor.
  

Requirements:

• Written portion of the project should be 5-6 pages, including the spreadsheets (but not including the cover page)
  
• Written portion to include:
  i. Why product was chosen?
  ii. How cost was derived (where materials were obtained, etc.)?
  iii. How was price determined?
  iv. Why your classmates should purchase your product? (Sell it – this part
  should be fun!)
  

Answer 1

I have selected a product broom

A broom is a cleaning tool consisting of usually stiff fibers (often made of materials such as plastic, hair, or corn husks) attached to, and roughly parallel to, a cylindrical handle, the broomstick. It is thus a variety of brush with a long handle. It is commonly used in combination with a dustpan.

A distinction is made between a "hard broom" and a "soft broom" and a spectrum in between. Soft brooms are for sweeping walls of cobwebs and spiders, like a "feather duster". Hard brooms are for rougher tasks like sweeping dirt off sidewalks or concrete floors, or even smoothing and texturing wet concrete. The majority of brooms are somewhere in between, suitable for sweeping the floors of homes and businesses, soft enough to be flexible and to move even light dust, but stiff enough to achieve a firm sweeping action.

Brooms have been used for centuries to sweep up, in, and around the home and workplace. They may be made from a variety of materials, both man-made and natural. Man-made bristles are generally of extruded plastic and metal handles. Natural-material brooms may be constructed of a variety of materials, including brush, but generally include stiff grasses such as broomcorn and/or sotol fiber. Broomcom brooms have been made for at least 200 years and are considered superior brooms. Plastic brooms merely move dirt around, however, broomcom stalks actually absorb dirt and dust, wear extremely well, and are moisture-resistant. Broomcom brooms are the most expensive of the manufactured brooms.

Broomcom is actually a variety of upright grass of the species sorghum referred to as Sorghum vulgare, or S. bicolor variety technicum, belonging to the family Gramineae and cultivated for its stiff stems. Broom bristles are derived when these stiff, tasseled branches—that bear seeds on the ends—are harvested and dried. The seeds are edible, starchy, and high in carbohydrates. They can be used for human consumption (in cereals) or for animal feed. The tasseled stalks, used in the manufacture of brooms, can grow 2-8 ft (0.61-2.4 m) tall. Sorghum is especially valued in hot and arid climates due to its resistance to drought.

Mexico grows and processes most of the broomcom and sotol fiber used in American broom production. Sotol fiber, a yucca fiber, is sometimes used on the inside of the broom and is wrapped with more expensive broomcom, thus lowering the price of the natural-bristle broom.

The production of broomcom brooms is still largely a craft production with a single operator working quickly at a machine, making brooms by hand. There have been some changes in the manufacture of broomcom brooms within the last several decades, but those changes have been very minor. Essentially, the handcraft has changed little since mid-twentieth century.

Brooms were often used in matrimony rituals to symbolize a union.. Enslaved African-Americans married one another in a civil ceremony referred to as "jumping the broom" in which the couple would literally jump over a broom to signify matrimony. Today, African-Americans occasionally recreate this custom by jumping over a broom at weddings, using specially handmade and decorated brooms for this purpose. These brooms then become a centerpiece within the new household.

Raw Materials

The material used is broomcom, which is shipped bundled in large bales. The bundles are grouped according to the length of the grass and color. Sotol fiber from the yucca plant may be used in cheaper broom-corn brooms. White metal wire, of approximately 18 gauge, is used to secure the broomcom and sotol to the handle. A small nail or two is used to secure the wire to the handle. The handles are generally of wood. Sometimes American hardwood is used, but more likely the wood used is ramin wood, an imported wood of dense, heavy, coarse grain. Thick twine is used to sew the brooms flat using a sewing machine. Finally, water is necessary in that the broomcom must be wetted completely in order to be worked

The Manufacturing Process

It is important to note that brooms made from broomcorn are made at a station, brooms are largely still assembled by hand. The process described below is used by the small manufacturer of brooms and the factory uses about 25 makers to produce 600 brooms per day.

1. The raw material for the broom, the broomcorn, comes into the factory already processed and bundled. The bundles are sorted by length and are sorted by the color of the fiber. Bundles are grouped together in a bale weighing about 120 lb (54 kg). Broomcom must be wet in order to be worked effectively and must be quickly dunked in water before being delivered to the operator. Each bale is lifted with a crane and submerged in a tank of water for 10 seconds. The bundles are then removed from the water using the crane.
2. Workers break apart the wet bales and separate the smaller bundles within the bales. The bundles are placed on racks and rolled to operators who sit at broom-manufacturing equipment.
3. An operator sits at a broom-making machine and has the broomcom and solid handles there to work. An individual handle is picked up by the operator. The operator inserts a metal wire into a hole drilled near the bottom of the handle. Then, the insides are first applied to the broom. In this process, the lowest-grade grass is pressed around the wooden handle, forming the center of the broom. This thick bundle of grass is secured tightly to the handle using the wire attached to the handle through the hole.
4. Then, the shoulders and sides of the broom are given shape as smaller bundles of lesser grade grasses are placed along each side of the center bundle of grass. This side corn is secured to the central bundle of grass using more tinned wire that is wrapped by hand tightly around the side corn as well as the central body of grass.
5. Next, the grass is cut off in a straight line just above the wire by the operator using a knife.
6. Over this foundation of lower-grade dbroomcom or other grasses is now added the outside of the broom, or the broomcom we see when we look at a broom. The hurl, the best grade of broomcom used in a broom, is attached to the broom. It is laid atop the center section and shoulders, completely covering it. The hurl is physically attached to the broom using the same piece of white metal wire used earlier in the process.
7. The final construction step is referred to as the run down. The operator runs the wire that secures the hurl down to the handle and nails it off, thus securing the cut end to the wooden handle. The grasses and broom-corn are now completely secured to the broom.
8. The brooms are now constructed but are not finished yet. In order to complete the broom, the broomcom must be dried out completely. The brooms are moved by rack or palette into a very large drying room that is thermostatically controlled. Depending on the weather, the brooms are left in this large, hot room for five to six hours. When instruments inside the room indicate that no more moisture is being released from the brooms, the heat kicks off and the broomcom has completely dried.
9. The brooms are now seeded, meaning that cylinders roll vertically over the broomcom, thus removing all the seeds and small pieces of broomcorn not secured to the handle that will fall out quickly upon use.
10. The seeded brooms are taken to sewing machine operators who run the brooms through a heavy-duty sewing machine with two needles that is threaded with thick twine. The brooms are put through the machine and the broom is flattened and its shape is maintained through the double, triple, or quadruple rows of sewing (depending on the machine and company) that holds the grasses tightly. It takes about 45 seconds to sew the brooms into a flat shape.
11. The brooms are moved by cart to final finishing, where they are trimmed across the bottom so they are even, packaged, and sent for distribution.

Raw material cost

Broomcorn - $ 90 Per Kg

Plastic handel - $ 20 per piece

Steel guage - $ 30 per Kg

Qty of raw material required for 1 broom

Broomcorn - 0.5  Kgs

Plastic handel - 1 per piece

Steel guage - 0.20 per piece

total cost of raw material for one broom

Broomcorn - 0.5* $90 = $45

Plastic handel - 1*$20 = $20

Steel guage - 0.20 *$30 = $15

Total raw material cost =$75

Total brooms produced in a month is 600*30 = 1800 brooms

Direct labour cost

The federal minimum wage should be used as the labor cost per hour is $14

labour will work for 8hrs in day 240 hrs in a month

Total direct labour cost for one broom

600 broom can be produced by 25 man power in 8 hrs

= 25*8*$14= $2800 per day

Direct labour cost= $2800/600 = $ 4.6 per Broom

Overhead cost as per given in question it is $100 per month

Total manufacturing cost per month

Raw material = 600*30*$75 =$135000

Direct labour = 600*30*$4.6 =$8400

Additional OH     $2000

Overhead cost Given    = $100

Total =$145500

Per broom cost is =$74+$4.6+$3.5=$84

Profit = $84* 15% =$12

Sales price is $ 96

Below is the way that made my product purchase by class mates

Identity.

People make purchases that fit who they are or who they aspire to be (or both). Our customers are often people who are concerned about what they eat as well as their footprint on the environment. They tend to make choices that fit this identity consciously -- but many consumers do not. Who are your customers? Who do they want to be? Determine this. Keep it in mind at all times.

Value.

Value is highly individual to consumer groups - what one group considers valuable can differ from another. Amazon customers may value the ease and competitive prices that Amazon offers. For Whole Foods customers, it is often rooted in that they can trust products are natural and responsibly sourced, with price and ease less relevant. Don't assume that what matters to one matters to all.

Experience.

It's easy to forget that stores and products are an experience - one that many consumers enjoy. Apple is a great example of the power of product experience. Prior to it introducing beautifully designed products, the look and feel of tech gadgets and gear was often ignored. It gave Apple an enormous capability to beat out what was (and continues to be) a crowded market. Give thought to this with your store and/or product.

Connectivity/Community.

We inadvertently participate in a community and experience connectivity with others who buy the same things we buy. It creates a commonality. For example, Simple Mills customers often engage and interact on our social pages. Harley Davidson motorcycle owners gather every year at a large festival in the company's hometown. This can also be very subtle, where purchasing your products simply makes the customer feel part of something larger.

Quality.

Cost and convenience often require a compromise of quality. For the shopper moved by quality, this matters - and you'll risk losing them if you cut corners here. Hundreds of luxury brands have held potent positions in their categories because their customer wants craftsmanship, fine materials and so on. Don't assume that price will keep a customer alone. If making things easier for your customers requires you to chop away at your product, don't do it.

Need.

In an era of innovation, ideas explode across all markets. But not all fill a need - and needs of all kinds play a huge part in consumer behavior. It can be base needs like food or shelter, or something else. Google was enthusiastic about its Google Glass product. But consumers felt differently and it affected sales. My company's customers feel a need to eat natural, whole foods. Find this in your customer. Make it your priority.