10.5 Flashcards
cost effectiveness
most efficient way of designing and producing a product from the manufacturers point of view
fixed costs
costs that have to be paid prior to production. do not change no matter the scale of production.
marketing, r and d costs, rent, salaries. these costs are spread out if more products are made
variable costs
costs that will change based on scale, volume of production.
buying raw materials, labour costs, fuel prices etc
total costs
u get it by calculating the fixed and variable costs. needed to understand if a product is gonna be viable to release into market
break even point
the balance point of loss and profit. important to know number of products that need to be sold in order to cover total costs
cost effective strategies for designers
minimise number of components
minimise production processes needed
use automated/low skilled processes
cost effective strategies for manufacturers
economies of scale/buying in bulk, negotiating raw material prices
reduce waste
use automated processes
consider location of factories (cheaper rent etc)
cost analysis
determines the feasibility of manufacturing a product, including the risks against the gains
value for money
the relationship between what a product is worth and the money spent on it
what affects value, perception of product?
potential benefits
features
brand reputation
emotion (how will product make client feel)
cost
how much it takes to make a product. baseline for the price
price
how much consumers are willing and able to pay for certain products. reflects products perceived value + profit the company determined it can receive
factors that affect the pricing
market competition
supply and demand
brand reputation
marketing
list pricing strategies
target costs – desired final cost calculated prior to manufacturing
price minus – market research is used to determine max price that customers will probably be willing to pay
retail price – final price consumers pay
wholesale price – discounted price retailers pay when buying from wholesalers (bulk)
typical manufacturing price – typical cost manufacturer is able to sell at
return on investment – profit made from a product. used to evaluate efficiency of investments
financial return – total monetary gain of selling relative to costs
unit cost
sales volume – number of units sold (influences economies of scale)
price minus
market research is used to determine max price that customers will probably be willing to pay, prior to manufacture. decisions are made based on this
retail price
price at which product is sold to customers
wholesale price
cost sold by wholesaler (sellers of large quantities to retailers)
price is higher than what manufacturer sells it for, but lower than what retailer can sell it for (as more costs are added at each step of chain)
typical manufacture price
total cost manufacturer is able to sell at. generally total cost is divided by number of products produced, and then profit margin is added
target costs
desired final cost calculated prior to manufacturing. set profit margin is subtracted and we are left with the price constraint, around which decisions are made
return on investment
measure of how profitable a product is – percentage of profit earned relative to money invested in product
unit cost
total cost of one unit (including production storage, selling costs – both fixed and variable)
sales volume
amount of products sold within a specific time frame (annual etc)
financial return
profit made from sale of a product. total revenue - manufacture, distribution, marketing costs
