These notes are a copy of my notes from F.I.T . Originally created by my instructor Michelle Lalonde. (c) Dated 6-27 – 1992
A simple cost sheet to calculate the cost of your bags.
I modified some of the numbers to reflect today’s commissions. It’s a really good starting point to get the best price point for your bags. One of things that comes about when making your products from home is calculating your labor cost. How much time did it really take you to make the bag? How much are you worth? Did it take you 4 hours to make a bag from beginning to end what are you worth per hour? You need to put that in your cost sheet under labor. Another important factor to consider is waste! How much did you really waste? Somebody has to pay for it 🙂
There are two main parts to this cost sheet.
- The first section deals with all materials, supplies and components.
- The second section deals with labor, fringe benefits, profit, overhead and commission.
Before you can start to enter information into the proper column of this cost sheet, such as footage needed for this project, including waste, which is usually calculated at 35%, if the outside material to be used is leather. You must also know the price of the leather for your project.
When calculating footage, we do not use smaller fraction then 1/4 ft. This means that we will use 1/4-1/2 and 3/4 of a foot. When the footage per handbag is established. We multiply the total feet and fractions needed, by the cost of the leather per square-foot.
Next you you must calculate how many linings you will be able to cut out of one yard of material. This depends on how wide the material is. the width is normally between 36″ to 54″. We will of course be able to yield more linings out of the wider material. While estimating how many linings per yard. Is important to remember, that no matter how wide the material is, it will always be 36″ inches long.
For material (piece-goods) there will also be some waste but only 10 to 15% because there are no imperfections in piece-goods, as in leather. Which is a product of “nature”. We must also know the price of any materials or component parts needed to produce this are any other project. If more then one part is required, the price per item must be multiplied by the number of parts used.
Not all parts listed in this cost sheet are need on all projects. In that case leave the column free. Any supplies, for which there is no column, we can use an unused section.
The most difficult part to grasp, is the column “stays”. This part deals with all stay-patterns(master patterns) such as mainstays, gussets, bottoms, linings, ornaments and handles. There are all different types and weights of stays. By weights we mean the thickness of the stay paper.
Minimum orders when having your stays cut is one gross sets.This means that the die cutter will send back one gross (144) complete sets of stays. This means you will receive 144 complete bags. The die cutter then charges you for a complete set.The price depends on how many parts. How large the patterns are and what weight or thickness the different parts are. There is also a one time charge for all dies for the set. After all entrees are made, you add the last (total) column. This figure represents all material and component-parts needed to produce one handbag.
The instructions for this cost sheet are only a guideline. You will find that not all manufactures use the same system, especially for lower priced merchandise. The cost sheet works like this.
The second section deals with labor, fringe benefits on labor(45%),profit, overhead and commission (55%) and selling price.
We arrive at labor costs, by calculating the amount of time it takes to produce the bag and the average hourly wages paid. It also depends on the number of bags a factory can produce with the employees on the payroll. A complicated, labor intensive bag will cost more to manufacture then a simple bag with less labor. l
Labor costs also depend on the type of equipment one has invested in and the experience of the labor force. It is much more difficult to arrive at a proper labor figure in a start-up situation, then a plant that has been in operation for a number of years, where comparisons can be drawn from other styles, similar to the new bag going into production.
While we calculate single bags, other plants, producing lower priced handbags, with cheaper materials and findings might figure their labor per dozen or even per gross(144). We must also be aware of price increases in labor, findings and raw materials, which will of course reflect the pricing of labor and fringe benefits. Outside labor is only a consideration, if any part of the bag is done by a outside contractor. There are no fringe benefits to be added on “outside” labor.
Fringe Benefits 45% – consists of all moneys spent on payroll, that the employer must pay in addition to regular wages. They consist of: vacations, holidays, sick days, health-Insurance, life_insurance, retirement fund and any other demands a union contract might make or your employees might make. The 45% for fringe benefits can change. That depends on the amount of money that must be spent per employee for non productive expenses. We arrive at a total labor cost by adding: labor, outside labor if needed and fringe benefits.
Next we move our total material cost into the column below total labor and add these two, to arrive at our “total labor and material cost”.
Next we calculate profit, overhead and commission.
Lets start with overhead: All expenses connected with administrative costs: Such as office and factory rent, alarm system, office machine rental. lawyers retainer, accountant fees,office payroll and fringe benefits, production-liability insurance burglary, fire and personal-liability insurance, telephone, computers, fax, cleaning-service, petty cash, advertising, subscriptions , catalogues and commission: all sales expenses which are connected with selling the merchandise. they can range from 5% to 15%.
This depends on the price range and the amount of handbags that can be manufactured. If a sales person travels a lot commissions or travel expenses must be renegotiated. profit is something that must be arrived at by the owners ,partners or corporation. On this cost sheet we will use 55% for profit. overhead and commission. This is only a guideline for you to follow. We will arrive at our sales price, by adding the next two columns: Total labor cost, profit-and-overhead and commission. In order to arrive at a proper “price range”. This price can be adjust up or down, eliminating odd prices. The “true” correct sales price should consist of quarters, halves and three quarters only. Example: if the true sales price is $127.83. This figure should be adjusted to be $127.75 or $127.50 to arrive at a accepted” sales price”. If you think the price for this product is to low and could fetch a higher price, or you think there is to much competition to be able to sell the handbag for the arrived at, you can always adjust the price up or down.
Sales commission is next. As explained earlier the percentages might change. In this cost sheet we will use 15% of the adjusted “sales price”. We multiply our sales price by 15%. Example: $127.75 X 15% =$19.16. The commission must be deducted from our sales price. The amount left is called your “net price”. there can be no adjustments made on commissions, because this is the sales person income. Again we don’t work with small fractions. Below a 1/2 cent we deduct, above a 1/2 cent we add to the earned commissions.
Example: Sales price:(127.83)
Less 15% comm. $-19.16
Net price: $108.59
My summary of the above text!:) Overview:
1. Take each pattern piece and measure the length and the width. Multiply.
2. Then multiply the above number by the number of pattern pieces. Example: 3×2 =6x2pieces =12sq inches.
3.Now multiply this amount by .35, this is your waste factor. add that amount to the total sq inches. Add up the total sq inches and divide by 144. You now have sq ft.
4. All leather is sold by the sq ft. Multiply the sq ft by the price to get your material cost. If by the yard divide the sq ft by 9 Example: 144 sq ft divide by 9= 16 yds then multiply the price per yard.
Don’t forget rep fee’s , hardware and other cost that need to be considered. Plus rent, lights, machinery, in other words the bills! Use a factor so that each bag also pays a part of the overhead it took to produce them. After you have calculate all your expenses associated with making the bag. Now add your markup. I use 85-100% markup as my standard markup. You would be surprise how much markup is in a bag. Especially if you want to be in a higher price point in the market. Once you have added your markup, deduct your rep fee’s 15% or 20% or sales force! Now you have your wholesale price.