Individual Project II: Product Costing
The product upon which this project is designed is a beaver hat. Beaver hats have had a long and checkered history as fashion items for the members of the highest social classes as early as the seventeenth century (Jim & Clay, 2016). This was a common fashion item for the Europeans and Americans. The beaver skin was used for making hats for the social elite because it several properties that include a warmth exterior, luxurious fur, and the fact that the fur was very durable (Jim & Clay, 2016).
The animal fur also enjoyed the preference of felt makers because the microscopic spikes inside the fur locked together when they were treated using moisture and heat. The preference of beaver fur of all other animal furs was predicted by the fact that beaver fur has many of the preferred spikes in the inner wool of the animal. After treatment with moisture and heat, even the lower grades of the fur produced a fine felt that could be transformed into a fabulous hat (Jim & Clay, 2016).
The manufacturing of a beaver hat is done in three phases.
The Pelt Preparation
Some of the imported pelts are pre-processed. This involves the removal of the guard hair to expose the beaver wool that is underneath. Combed pelts are necessary for the hat manufacturing process. This phase also entails the pulling and shaving process that is done to remove any residual guard hairs (Center for World History, n.d.). The beaver wool is also shaved off the pelt in readiness for the carroting process. This is a process in which the pelt of the fluff that is left when the beaver wool is shaved from the pelt is soaked in a solution that is made of mercury salts and nitric acid (Center for World History, n.d.). The carroting process is done to dissolve the keratin in the fur in order to facilitate the felting process. The pelts are then mixed, weighed, and sorted in readiness for the felting process (Center for World History, n.d.).
The Felting process
The felting process is done in order to improve the pliability of the fur so that it is shaped into the hats (Center for World History, n.d.). The bowing process is initiated to remove any tangled fur as well as rid the fir of dirt. It is in this phase the size of the bats for the use in making hats of different sizes is chose (Center for World History, n.d.). Large bats are used for large hats, and smaller bats are made for the use in finishing details and in the joints. The basoning process is also done where the bats are covered using a moist clothed and then exposed to a heat source (Center for World History, n.d.).
The basoning process is one to enable the bats to bond, condense, and shrink. The shaping of the bat is also done at this stage. Planking is also done to enable the felts to shrink even further. A solution of sediment, wine waste, and hot water is used in the planking process (Center for World History, n.d.). This final process in this phase is the drying and blocking where the shrunken felts are pinned and stretched on a wooden mold. The felts are then shaped depending on the shape and size of the hat to be made and then dried (Center for World History, n.d.).
Finishing
It is in this stage that the felt is shaped and manipulated to take the shape of the hat. The trimming and dying of the felts is done so that the outer surface is well finished. The felts are then dyed depending on the preferences in the market (Center for World History, n.d.). A stiffening agent is then applied and the felt is then exposed to steam to help the stiffening agent to seal. This step is important for the hat to develop the final shape. Finally, the trimming is done while other finishing details such as the lining of the inner surfaced and detailing is done (Center for World History, n.d.).
Product Cost Calculation
Product cost = Total manufacturing costs / Total production output
= 879240 / 10000
= 87.924.
This shows that it will require 87.924 dollars to produce one of the hats.
Setting Product Price
The pricing of a product is not just important to recovering the costs of production but also generating enough income to breakeven and make a profit. In addition to the unit manufacturing cost of 87.924 dollars there are other costs that should be factored into the unit production costs in order to determine the price that product. The full cost plus method offers an objective way through which the cost of the beaver hats can be determined. In this method, the price per one unit o the beaver head is given by dividing the sum of production costs and the markup feed by the number of units produced. Based on the tabulation above, the production output for the factor is 10,000 hats. For the sale of these hats, the company desires a profit of 300,000. To offset all the productions costs and make a profit of 300,000 dollars, the beaver hat has to be sold at a price significantly higher than the 87.924 dollars that was used to produce on beaver hat. After applying the full cost plus method, the following is the product price.
(826000+300000) / 10000
= 1126000 / 10000
= 112.3 dollars
Forecasted Income Statement (Contribution Margin Format)
Summary of the Project
The project involves the production of beaver hats for sale to the upper end market. The most significant factor for the production process is the availability of the raw material. The beaver skins are in high demand, and the various grades fetch different prices. To get a good quality hat, the beaver skins to be used will cost significantly more than the lower grade skins. The financial analysis shows a potential to make a net profit of 454760 dollars. However, a production capacity of 10000 hats is required and a sales of 1123000. The product price is set at 112.3 and the breakeven point is after the production of 18627.9 units of after sales of 2091920 dollars.
References
Center for World History. (n.d.).Felting a Beaver Hat. Retrieved from http://cwh.ucsc.edu/feinstein/The%20process%20of%20felting%20a%20Beaver%20Hat. html
Jim, H. and Clay, L. (2016). From Pelt to Felt: the Making of a Beaver Top Hat. Retrieved from http://www.alfredjacobmiller.com/explore/from-pelt-to-felt/
