Read the attached article, “How the cost of shirt adds up” andanswer the following question. For amounts, if there is a rangegiven, use the high value. Each question is worth 2 points.
1. What are the direct material costs of the making the shirt?List each item and the cost. Then total up the direct materialcosts. Item Cost Total Direct materials:
2. How much is the direct labor cost of producing the shirt?
3. The total cost of producing the shirt is $30.00. Using youranswers to #1 and #2, how much manufacturing overhead cost must beassigned to each shirt? Show your computation here:
4. Katherine & Jared MacLane sell the shirts to awholesaler/retailer. Compute the profit per shirt that they make.Show your computation here:
5. The shirt is then sold by the wholesaler/retailer. Computethe profit per shirt that retailer makes. Show your computationhere:
A KP MacLane polo shirt.
CBS News
(CBS News) Ever wonder who figures out how much a shirt willcost? Erin Moriarty of "48 Hours" has been ADDING IT UP:
Designers Katherine and Jared MacLane so believe in the poloshirt they brought to market this past November that they arewilling to share the nuts and bolts of their business - and theydon't shy away from a tough question, such as pricing:
"Most of the polo shirts I can buy at retail are $90," saidMoriarty. "And you're asking $155. How do you convince somebody tospend that kind of money on a polo shirt?"
"We just say, 'Just try it on!'" she laughed. "I think thatpeople will see the difference.
"We almost took a backwards approach to manufacturing. A lot ofpeople look at, 'Oh, how are we going to keep our costs low so wecan make a higher profit?' And what we looked at is, 'What can wedo to make this the best shirt possible?' And then we'll price itfrom there."
Katherine and Jared met while working at the Hermes boutique inBeverly Hills - which may help explain why they looked to Francefor the fabric for their shirts.
"A woman's shirt can take anywhere from a yard to a little lessthan a yard of fabric, per shirt," said Jared. "And that runs about$6.10 or $6.50 depending on what time of the year we buy."
True mother of pearl buttons were too expensive - a dollar each.They found similar but sturdier versions in Hong Kong.
"Our buttons are about three cents apiece," said Jared. Thereare three - plus an extra one "in case, you know, you need it downthe road."
And instead of a box, the shirts are placed insidehand-embroidered linen bags from Vietnam.
"We didn't want to give the customer something that could beeasily, you know, thrown away," Jared said. "We wanted it to bereused, wanted to be special. And we wanted to be of the samequality that the shirt is made.
The linen bags: $2.90 apiece.
But what adds most to the cost of the shirts? The MacLanesactually produce them here in the United States.
Jared said manufacturing the shirts domestically costs 75percent more than making them outside the U.S. - a little over $11per shirt.
And for how little could they be made in, say, China? One or twodollars.
There is also the cost of thread, the labels, cloth tape for theshirt vents, tissue paper, and shipping from the New York factoryto the MacLanes' home in Atlanta.
All told, one KP MacLane polo shirt costs about $30 to make.Using the standard mark-up, the wholesale cost is $65.
As for the retail price? You may be surprised that clothing isusually marked up MORE than 100%. That's how the MacLanes arrivedat $155.
"It sounds like, in order to make this company successful andhave people buy your shirts, they really do have to kind of knowthe story behind each shirt," said Moriarty.
"Yeah, and we're happy to tell it," said Jared. "A lot of timeswe go shopping and you don't always consider what goes into agarment."
"If they know the kind of thought that we're putting behind ourproduct, and they know the kind of quality that we're putting outthere, I think if you build that loyalty and build trust, I thinkthat that will keep you around a lot longer than somebody who'sjust craving a brand - as opposed to a brand and a qualityproduct," said Katherine.
