Introduction

The following report discusses research and development (R&D) to determine the design, characteristics and functions of a selected product. Further, the report will discuss the product’s upstream cost and then, based on market research; it will discuss production and downstream costs for 200,000 units manufactured. On this basis, the product will be priced and marketing and distribution channels will be determined.

The selected product is ANAS shoes.

Part 1: Product

Description

ANAS shoes are sports shows for men and women. The unique selling proposition is that the shoes are very light in weight and extremely comfortable. The shoes range provides a variety of options such as, walking shoes, running shoes, hiking shoes, trainers, specific sports shoes etc . (Types of Shoes, 2020).

Logo

Keeping the product and its features in mind, following logo was created for the company. An online logo maker website was used for the purpose (Designevo, 2020):

The company product, that is, shoes is prominently displayed in the logo. Additionally, the attractive colour scheme of red and navy blue has been used which is frequently used in sports shoes also. The feather at the back of the shoe is to depict the product feature that it is very light in weight and comfortable. Further, the brand name and tagline is also there to support the same depiction.

Part 2: Research & Development Cost

R&D activities log:

*According to Payscale (2020), the average annual salary for Research and Development technician varies from AUD 49,000 to AUD 69,000 with an average annual salary of AUD 56,708. The salary varies basis years of experience.

Taking average annual salary and assuming 8 hour workday with 26 working days in a month, the hourly wage rate can be calculated as:

Average hourly wage rate = Annual Salary/(12*26*8) = 56,708/2496 = AUD 22.7/hour

Part 3: Costs for the Product

Direct Costs

Direct Materials cost per unit (Madehow.com (2020); The Sneaker Factory (2019) and UNIDO (2000)):

Direct Labour cost per unit (Payscale, 2020):

Total Direct cost per pair = 11.01+2.97 = 13.98

Overheads

Variable overhead costs (UNIDO, 2000):

The given overheads are for 400,000 pairs. Direct labour hours will be used for estimated level of activity. Hence,

Total labour hours required for 400,000 pairs = 10min/60min x 400,000 = 66,666.7 hours

Total labour hours required for 200,000 pairs = 10min/60min x 200,000 = 33,333.3 hours

Predetermined Overhead rate=$435,000/66,666.7 DLHs = $6.53 per Direct Labour Hour

To calculate manufacturing overhead cost per unit:

= Overhead rate x actual direct labour hours required for per unit

= $6.53 per Direct Labour Hour x 10 minutes of direct labour hour required per pair

= $1.09

Product cost per pair:

• DM: $11.01
• DL: $2.97
• MOH: $1.09
• Total per pair product cost: $15.07

Part 4

The purchases for direct material were for 200,000 pairs. Hence, $11.01/pair direct material cost has been used to calculate the purchases as $2,202,000.

The cost of material used is also $2,202,000 calculated as opening+purchases-closing.

Part 5

Cost of Goods manufactured and used is $3,014,000

Part 6

COGS = $3,014,000

Part 7: Price

Sports shoes for top brands such as, Nike, Adidas etc. sell for more than $300 on an average. This is mainly on account of sales and advertising expenditure due to various endorsements done by sports stars, celebrities who charge exorbitant prices for these endorsements. However, the cost of making the sports shoes is in-line with what has been calculated above. It runs from $15 to $40, depending on features and quality of material (Solereview, 2020).

However, ANAS shoes is a new company and yet to get recognition and create brand value. Hence, the price cannot be $300-$400. However, average mark-up in the shoes industry ranges from anywhere between 100% and 500% (Waits, 2010). 

Hence, ANAS shoes will mark-up the cost by 200%. The higher mark-up is also because downstream costs are yet to be accounted which include sales and distribution costs that is a major component. Further, the retailers charge high margin on shoes so that seasonal discounts can be offered easily. Hence, these costs need to be built into the price.

The determined price is:

Part 8: Downstream Activities & Cost

According to UNIDO (2000), some of the downstream costs include:

The product will be distributed through retail channels. Hence, various retailers in malls, shopping complexes, high-density areas will be contacted to join the distribution network. Additionally, the brand will have an aggressive marketing campaign so as to create a buzz for the new product. This will help the retailers to sell the product.

Part 9: Income Statement

The COGS has already been calculated above and the same will be utilized for statement below. It includes direct material, direct cost and variable overhead. The sales and distribution expenses will also be used as calculated above.