Crunching the Numbers: Calculating Material Costs
Hi Reader,
I hope you have been enjoying our Pricing Series so far and are taking notes!
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In our journey towards mastering pricing, we're moving on to a crucial step: calculating material costs.
This is where you'll need to pay close attention to the details.
Step 1: Start by listing all the materials used in a single fashion piece. This includes fabrics, buttons, zippers, lining and any embellishments.
Step 2: Determine the quantity of each material required per piece and its cost. Assign a specific cost to each material on your list. This cost should reflect the price you pay to purchase each material in the quantities required for one unit. For example, if you bought 6 yards of fabric at N120,000 and you sew 3 dresses, the cost of fabric per dress is N40,000.
Here is a simple formula to calculate material costs for one unit:
Material Cost per Unit = (Cost of Material 1 + Cost of Material 2 + ... + Cost of Material n)
Let's say you're making a dress, and the materials involved are as follows:
- Fabric: N40,000
- Buttons: N200
- Zippers: N1,000
- Threads: N200
Using the formula:
Material Cost per Unit = (N 40,000 (Fabric) + N 500 (Buttons) + N 1,000 (Zippers) + N 1,000 (Thread)) Material Cost per Unit = N 41,400
In this example, the Material Cost per Unit for your dress is N 41, 400.
This means that the direct material expenses for each dress you produce amount to N41,400. You can then use this cost as a foundation to determine your price.
Ensure that you cover your material costs ( the N41,400 above) while also factoring in labor, overhead, and profit margins.
Once you've calculated the material cost for one unit, you can use this as a basis for setting your prices.
ANY QUESTIONS?? REPLY to this email and let me know!
I know math can be scary but YOU GOT THIS!
Keep an eye out for our next email, where we'll explore labor and overhead costs.
-Your comrades at Business of African Fashion
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